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Palladium attracting new attention as prices test $2,500 on Nornickel supply issues

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Editor's Note: The article incorrectly stated the forecasted decline of Nornickel's PGM production. The comapny expects production to decline by 710,000 ounces.

(Kitco News) - High-flying palladium is back in the spotlight again, and one bank sees the potential for a new breakout as the market faces a deeper supply deficit in 2021.

Tuesday, palladium prices rallied 5% to test critical resistance at $2,500 an ounce after Russian mining giant and the world's largest palladium producer Nornickel said that its nickel, copper, platinum, and palladium output could be 15-20% short of its original guidance.

Although prices are down from Tuesday's high, palladium is still holding on to some of its recent gains. June palladium futures last traded at $2,477.50 an ounce, down 0.58% on the day.

Because of mine closures last month due to water issues, Nornickel said that it expects platinum group metals production to fall by 710,000 ounces.

Analysts have noted that the palladium market already has a significant supply deficit, and the latest news only exacerbates the issues.

Eugen Weinberg, head of commodity research at Commerzbank, said that $2,500 has proven to be a substantial barrier for palladium prices.

"However, the price could make further gains in view of the tight physical supply situation. Indeed, the situation could soon tighten even further as sales of new cars are likely to be given a boost when the corona-related mobility restrictions are lifted in Europe, which is expected to happen soon," he said.

Although palladium is a precious metal, almost all of its demand comes from industrial fabrication. It is a critical metal in catalytic converters in gasoline-powered engines.

Looking at palladium's technical outlook, Karen Jones, head of technical analysis at Commerzbank, said that the metal needs to close above the November high of $2,516.51 an ounce.

"A close above here will signal further strength to the 78.6% retracement at $2,581. This is regarded as the last defense for the $2,878 2020 peak," she said.

Some market analysts have noted that with growing expectations of a robust global economic recovery, platinum group metals should continue to outperform gold's safe-haven allure with their strong industrial demand.

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.