Palladium Surges Toward Record With Demand Rising Amid Shortages

Palladium pushed toward a record high on expectations that supply shortfalls and rebounding demand from automakers will keep the market in a deep deficit.

Spot palladium rose as much as 2.6% to $2,849.33 an ounce, less than $35 below the record set in February 2020. Prices have climbed 15% in 2021, building on five straight annual gains.

Stricter environmental standards are fueling automakers demand for the commodity used in vehicle pollution-control devices. Disruptions at Russian mines run by MMC Norilsk Nickel PJSC have exacerbated supply concerns, even after the world’s largest producer has said the recovery is proceeding faster than originally planned. UBS Group AG forecasts a deficit of about 1 million ounces in 2021, which would be 10th straight annual shortfall.

“A series of positive supply and demand factors have been driving up prices,” said Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd. “That at the margin will also have sucked in some speculative trend-following money. Also, more generally, palladium had been range-bound for a while until mid-March and the ‘catalyst’ of Russian supply disruption.”

Palladium Surges Toward Record With Demand Rising Amid Shortages

Citigroup Inc.’s base case is for prices to reach $3,000 during the next three months. They could even reach $3,500 if disruptions at Nornickel’s Siberian mines turn out to be worse than the company has estimated, the bank said.

Restocking by automakers, expected to take place in the second half of this year and next year, after a chip shortage-induced destocking could boost demand for palladium.

The “‘catch up’ when chip supply recovers and auto stocks are rebuilt will be significant,” Citigroup analysts including Oliver Nugent said in a note. “This will be bullish for palladium physical balances especially.” It is likely that speculative buying prices this recovery ahead of time, they said.

A scenario in which half of prior stocks are rebuilt over six months would represent about a 5% annualized total demand increase for palladium, while a bull case in which all prior stocks are rebuilt would be worth about 10%, the analysts said.

Nornickel increased production of platinum and palladium in the first quarter even as two of its biggest Arctic mines fought flooding that’s forced the Russian mining company to lower annual targets. Production of palladium increased by 40% to 766,000 ounces and platinum by 23% to 184,000 ounces, it said in a statement on Monday.

Spot palladium traded at $2,814.32 as of 2:21 p.m. in New York. Palladium futures for June delivery rose 1.4% to settle at $2,813.60 an ounce on the New York Mercantile Exchange

In other precious metals, gold and silver fell while platinum advanced.

©2021 Bloomberg L.P.

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