Palladium to remain strong despite added Nornickel supply - analysts
(Kitco News) - Palladium prices are likely to remain strong despite news that Russian producer Norilsk Nickel will release three metric tons of palladium ingots from its stockpiles, traders and analysts said.
As of 10:22 a.m. EST, spot palladium was up 17% so far in 2020 and trading at $2,261.10 an ounce. The metal hit a record of $2,556.95 on Jan. 20, with market watchers citing strong demand for automotive catalysts, particularly as countries like China increase regulations on emissions, which requires more use of platinum group metals.
Norilsk Nickel, the world’s largest producer of palladium, said Wednesday that its Global Palladium Fund would deliver three tons of ingots from its current stocks. A Nornickel official told Reuters that the company is concerned about higher borrowing and hedging costs, since the lack of ingots has led to higher lease rates, backwardation and market volatility.
“That [Nornickel action] would certainly lend some temporary relief … to the lease-rates markets,” said one desk trader of platinum group metals. Otherwise, he said, rates have been in the double digits.
“Along with that, you would expect to see some price reaction to the downside.”
But if so, this likely would only be temporary, he continued.
“I still believe that the long-term fundamentals – being what they are – still point to stronger palladium prices.”
The trader later added, “I think a lot of people view Russia as steady suppliers to the palladium market anyway. This is probably not too out of the ordinary in them shifting forms in how they supply the market, based on where the demand is. They’re probably getting a premium for it. So why wouldn’t they shift?”
TD Securities also sees potential for further gains in palladium prices despite the Nornickel news.
“While this will tighten the sponge discount, we do not see this reversing the years of chronic deficits in the market,” TDS said in a research note. “Considering this rally has been much more fundamentally driven, and demand is set to structurally increase … the path of least resistance remains to the upside for palladium in 2020.”
Earlier this week, analysts with Bank of America Securities said they see palladium soaring as high as $3,500 an ounce before the rally ends. At the same time, demand is strong as mine supply has been falling since 2004, Bank of America said.