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Palladium Consumption Eyes Record High As Deficit Widens

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Palladium Consumption Eyes Record High As Deficit Widens

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(Kitco News) - Surging palladium consumption worldwide will hit an all-time high this year, according to the world’s largest producer of the precious metal.

Russia’s Nornickel updated its palladium outlook, stating that it remains positive amid growing demand triggered by the auto sector and not enough of global supply. The company added that this kind of demand will leave the market with a deficit of more than one million ounces.

“Market deficit to widen on the back of continuing demand growth from automotive sector and lack of new primary supply,” the company said in a press release published on Tuesday. “In 2017, palladium consumption is expected to reach a new all-time high of 10.8 million troy ounces with market deficit exceeding 1 million troy ounces.”

The auto industry is expected to remain the main driver for palladium consumption.

“We see a number of trends sustainable in the medium term, such as the global growth of car fleet driven by rising personal incomes in emerging markets,” the release said.

On top of that, the supply side remains limited, with capital investments into projects remaining at its lowest level for the past six years, the mining giant pointed out.

The updated outlook comes as the company reported its first-half core earnings, which dropped 3% to $1.7 billion, falling short of analysts' forecasts. Nornickel said its social-related expenses grew to $196 million in the first half from $57 million recorded a year ago.

Soaring palladium prices

Palladium did very well in the first half of 2017, with Nornickel stating that the metal was the best performing metal in its core commodities basket, soaring 45% on an annual basis, with price averaging $792 per troy ounce.

Reuters also reported that palladium is estimated to reach its highest annual average price on record in 2017.

“A poll of 26 analysts and traders conducted by Reuters returned an average palladium price forecast of $811 an ounce for this year, 5 percent above an average view of $770 returned by a similar poll conducted in early April,” the news agency recently reported.

Palladium jumped to $914.70 in June, reaching a 16-year high. More recently though, palladium gains have been capped at the $900 resistance level, said commodities analyst Jonathan Butler of Mitsubishi in London.

“Palladium prices hit spot highs of $907 last week, the highest since mid-June and look to be challenging those levels once again this week,” Butler said in a note. “As palladium continues to ride high it may come under increasing pressure from speculative profit taking.”

On Tuesday, the metal was trading at $886.11, down 0.78% on the day. 

Palladium is also well supported this year largely due to tightening emissions controls expectations, which would increase the auto demand for the metal even further.

“Passenger car sales in China increased by 5.5% to 1.7 million vehicles in July according to the China Passenger Car Association . . . This growth in sales is good news for palladium offtake in gasoline emissions control, all the more so since this year represents the first that China 5 emissions regulations have been fully implemented across the country, resulting in an uplift in average catalyst loadings,” Butler added.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.