Picture: ISTOCK
Picture: ISTOCK

London — Palladium is expected to hit its highest annual average price on records going back three decades in 2017 after tightness in the lending market pushed prices to 16-year highs in June.

A poll of 26 analysts and traders conducted by Reuters in July returned an average palladium price forecast of $811/oz for this year, 5% above an average view of $770 returned by a similar poll conducted in early April.

Palladium rallied sharply in late June as analysts and traders reported tightness in the lending market, which squeezed prices higher. The metal hit a peak of $914.70/oz and climbed to within $50 of sister metal platinum.

"We remain constructive on palladium’s outlook," Standard Chartered analyst Suki Cooper said. "Not only is the market set to deliver a deficit this year, but it looks set to be undersupplied over the coming years."

Next year palladium is expected to extend gains, to an average $849/oz. The current record annual average price for the metal is $799/oz from 2014.

Palladium had already been well supported in 2017 by the expectation that tightening emissions controls could push up automotive demand for the metal, a component in catalytic converters.

Catalyst manufacturer Johnson Matthey said in May the palladium market deficit was expected to widen to 792,000oz in 2017 from 163,000oz in 2016.

Banks cut back their platinum forecasts, meanwhile, by 5% to $955/oz, down from $1,007/oz in April. Johnson Matthey predicts the platinum market would see its first surplus in six years in 2017.

Jewellery demand in main market China is expected to languish after coming under heavy pressure in recent years from a switch in consumer spending towards other luxuries such as foreign travel.

Like palladium, the metal is also used in autocatalysts, but loadings are heavier in diesel engines, which are less popular in major markets like China and the US, and which are losing market share in Europe.

Platinum has underperformed palladium in 2017, leading some to predict the two metals, whose spread has averaged $470 in platinum’s favour over the past 30 years, could reach parity this year for the first time since 2001.

"Very bearish positioning in platinum futures and bullish positioning in palladium futures point towards hedge funds being short the platinum:palladium ratio," Julius Baer analyst Carsten Menke said.

"While we do not see platinum heavily undervalued on today’s levels, we believe palladium prices have moved too fast, too far. Parity between the two metals is possible, but should not be sustainable."

In 2018, platinum is seen at $1,050/oz, the poll indicated.


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