London — Last year’s best-performing commodity hasn’t lost its touch; spot palladium prices have soared above a record that stood for 17 years.
This followed its best year since 2010 on growing demand from car makers for the metal used to reduce vehicle pollution. While palladium’s supported by a lack of supply, the risk of a correction increases as prices rise.
Palladium reached a record $1,139.68 an ounce on Monday, extending a 3.6% gain on Friday, when it hit an all-time high that had stood since 2001. The metal gave back 1.5% on Tuesday.
"The rally looks a bit overdone, but that doesn’t mean it can’t run another $150 or $200," said Nikos Kavalis, director of research firm Metals Focus. "There’s tremendous demand from the Far East."
The world hasn’t produced as much as it uses since 2012, Kavalis said, with last year’s shortage rising to 1.6-million ounces. The metal is a byproduct of platinum and nickel mining, meaning shortages are hard to address, he said.
While car makers can substitute palladium with platinum, retooling factories is expensive and the metal makes up a relatively small part of their costs.
"I don’t think automotive producers are going to switch away from palladium into platinum unless they are comfortable that prices of palladium will remain at a premium," said Bernard Dahdah, a commodities analyst at Natixis in London. "It is not a quick process to switch." Prices could drop back to $1,040 an ounce as speculative demand eases, he said.
Longer term, demand may subside as electric vehicles gain market share.