Picture: 123RF/ALEX MX
Picture: 123RF/ALEX MX

Singapore/London — Palladium rose above $2,000/oz for the first time on Tuesday, extending a powerful annual advance driven by a sustained global deficit.

The platinum group metal (PGM) has gained 57% this year, with market watchers saying the shortfall will be hard to fill. That’s great news for producers of the metal, which is used mainly in autocatalysts.

Shares in top miner Norilsk Nickel have gained 51% in 2019. The effect has been even more dramatic for SA platinum producers, which dig up palladium alongside their primary metal, platinum. The FTSE/JSE Africa platinum mining index has tripled this year, its annual gain.

Higher prices don’t affect carmakers too much, because palladium is only a small part of the overall production cost, said Ole Hansen, head of commodity strategy at Saxo Bank. “The mining companies and speculators both reap the reward from the continued surge,” he said.

Spot palladium climbed as much as 1.1% to $2,000.35/oz on Tuesday, before paring gains to trade little changed at $1,976.68 early in New York.

Palladium has surged to unprecedented levels in 2019 as tighter emissions rules spurred demand, while supply has not yet been able to respond. Citigroup forecasts the move upward now has the potential to hit $2,500 in the first half of next year. Power outages in SA hurt mine operations in December, fuelling gains.

“In most cases, the cure for high prices is high prices, but not for palladium,” Tai Wong at BMO Capital Markets, said before the $2,000 level was taken out. That refers to the notion in raw materials that a rally induces fresh output, triggering the conditions that then roll back the advance.

“There doesn’t seem to be any new, ready supply at any reasonable price,” Wong said. “So, it could continue to move higher from here, though perhaps with more volatility.”

Many raw materials gained this week after the breakthrough between the US and China to forge an initial trade agreement, bolstering prospects for global economic growth and automotive demand. Other precious metals edged higher on Tuesday, with spot gold adding 0.2% to $1,479.31/oz.