Metals Focus: 'Matter Of Time' Before Palladium Breaks, Consolidates Above $1,600/Oz
Spot metal hit a record of $1,613.90 an ounce in March, corrected all of the way back below $1,300 in May, then started climbing again. It was trading $11 lower to $1,533 as of 9:02 a.m. EDT.
Most analysts characterize palladium as being in a large annual supply/demand deficit. The metal has been the strongest in the precious complex due to strong demand for use in automotive catalysts.
“In spite of strong resistance being clear at the $1,600 level, we believe that it is only a matter of time before the palladium price breaks through and consolidates above this point,” Metals Focus said.
Nevertheless, there are some headwinds for palladium to overcome, Metals Focus said. In particular, analysts cited the recently softer trend in sales of automobiles in the key markets of the U.S. and China. Sales of light vehicles in the Chinese market fell 9% year-on-year in June, while those in the U.S. were down 2.4% and European car sales fell by 8% from a year ago.
However, negotiations have begun for a new contract in the South African mining industry for platinum group metals, meaning potential for a supply disruption. The Association of Mineworkers and Construction Workers Union has called for a 48% rise in the minimum wage.
Metals Focus said it looks for an annual supply deficit of around 570,000 ounces in 2019, with above-ground stocks expected to fall to 12.9 million ounces by year-end. They had been up about 17.7 million ounces at the end of 2010.
Analysts noted that positioning data from the Commodity Futures Trading Commission show that speculators remain bullish on palladium, although the net long of 1.4 million ounces is still 48% below the high from January 2018, when the price was $1,102.
“This suggests there is considerable room for palladium positioning to grow,” Metals Focus said. “Coupled with ongoing strength in its fundamentals, this underpins our bullish price expectations for palladium, which we believe will sustainably break through $1,600 later this year and then go on to set new highs.”