Palladium’s biggest shortage in three decades means this year’s worst-performing precious metal may rebound as growth spurs record car sales and prompts Goldman Sachs to say the commodities bull market is intact.
The 1.6 million-ounce deficit seen by Standard Bank explains why prices for the metal used in catalytic converters will rise 25 percent by December 31, according to analysts and traders.
Autocatalysts are fitted to 95 percent of new cars and global sales will rise 5.1 percent to 76 million units this year, according to JD Power Automotive Forecasting.
While commodities plunged the most since 2008 in the first week of May, prices are rebounding, with demand for cars signalling that the global economy is still expanding. The supply crunch in palladium is mirrored in copper, maize and crude oil, prompting Goldman Sachs to predict a 20 percent return from commodities in 12 months and Morgan Stanley to forecast the highest-ever oil prices.
“The long-term story is excellent,” said Robin Bhar of Credit Agricole, and the most accurate of 20 palladium forecasters surveyed by the London Bullion Market Association in 2009. “With any commodity that gets a very restricted supply base, you’re always going to get worries.”
Norilsk Nickel, the biggest palladium producer, will report its highest profit this year, according to analysts.
BMW sold a record number of cars in the first quarter while Nissan chief executive Carlos Ghosn said he expected to sell the most vehicles ever in 2011.
After rising more than fourfold from 2005 to the end of last year, palladium fell 5.1 percent to $761 (R5 266) an ounce this year by 5pm in London on Monday, lagging behind gold, silver and platinum. It is also underperforming the 11 percent advance in the Standard & Poor’s GSCI index of 24 commodities, the 3.9 percent gain in the MSCI all country world index of equities and the 2.5 percent return on US treasuries shown by a Bank of America Merrill Lynch index.
The decline accelerated in March after an earthquake and tsunami hit Japan, forcing Toyota to shut plants, deferring demand for about 90 000 ounces of platinum group metals, Barclays Capital says.
Some losses would be recouped in the second half, said Anne-Laure Tremblay of BNP Paribas.
Supply from mines and stockpiles will fall 5.7 percent to 6.78 million ounces in 2011, the fourth drop in six years, according to Barclays. Autocatalyst demand will expand 6.2 percent to 5.47 million ounces, the most in 11 years, Barclays says. Each catalytic converter contains about 4g of precious metals.
Palladium is mined mostly in Russia and South Africa and found with other platinum group metals. Companies are digging ever deeper to find ore containing decreasing amounts of metal, with mining costs rising 30 percent in South Africa and 13 percent in Russia last year.
The anticipated commodities rally may be curbed if economic growth falters. Europe is contending with a sovereign debt crisis as Greece seeks to persuade investors it can avert a default. While US Federal Reserve chairman Ben Bernanke signalled in April the central bank would keep record monetary stimulus when its $600 billion bond purchase programme ended this month, he didn’t pledge a third round of so-called quantitative easing.
The US economy grew at a 1.8 percent annual rate in the first quarter, less than forecast, Commerce Department figures showed last week. The Organisation for Economic Co-operation and Development last month said it expected the global economy to expand 4.2 percent this year and 4.6 percent in 2012.
Commodity prices have doubled since the start of 2009, driving inflation higher and spurring at least two dozen nations and the European Central Bank to raise rates this year, potentially damping growth and demand for raw materials.
“We’ve probably seen highs in most metals,” said David Wilson, an analyst at Société Générale in London. “There is a big macro concern weighing on the industrial metals. You will see investors more nervous about holding onto positions in the second half of the year.”
Speculators have cut their net long positions, or bets on higher prices, across 18 commodity futures by about 25 percent since October last year, US Commodity Futures Trading Commission data show.
Slower economic growth and higher prices may also curb sales of jewellery made with palladium. Demand has fallen 45 percent to 630 000 ounces since 2006 and may drop another 7.9 percent this year, Barclays estimates. A surge in interest from investors may compensate for that.
Purchases of coins and bars and exchange-traded products backed by the metal jumped 74 percent to a record 1.09 million ounces last year, according to Johnson Matthey.
Production may also be less than forecast. Eskom said in April it did not have the capacity to adequately maintain its plants. Power cuts in January 2008 closed mines and smelters for five days. The last time palladium traded at $955 was about a month after it reached a record $1 125 in January 2001, following disruptions to Russian shipments. Sales from Russian government stockpiles, the fourth-largest source last year, may be running down.
Russian shipments to Switzerland, one of Europe’s two main hubs for storing and trading precious metals, fell 12 percent to about 500 000 ounces last year, the least in 15 years, Swiss customs data show. Cargoes totalled 25 817 ounces in the first four months. The stockpiles are a state secret.
The deficit forecast by Standard Bank would be the biggest since at least 1979, according to data from Johnson Matthey.
An autocatalyst is a cylinder of circular or elliptical cross section made from ceramic or metal formed into a fine honeycomb and coated with a solution of chemicals and platinum group metals. It is mounted inside a stainless steel canister and is installed in the exhaust line.
BMW told investors last month that it sold more than 382 000 cars in the first quarter, a record for the period. Daimler said in April that it expected to move 1.3 million Mercedes-Benz and Smart cars this year, the most ever. Nissan would exceed the record it set last year in 2011, Ghosn said.
More car sales means more profit for Norilsk, which mines about 43 percent of the world’s palladium. The company will report net income of $6.12bn this year, compared with $5.13bn a year earlier, the mean of eight estimates shows. Seventeen of the 18 surveyed analysts covering the shares rate them a “buy” or “hold”.
The boom is being replicated across the mining industry as commodity prices surge, with everyone from BHP Billiton to Rio Tinto to Xstrata forecast to make the most money ever this year, analysts’ estimates show.
“The economy around the world is doing okay and natural resources are in short supply,” said Francis McAllister, the chief executive of Billings, the US’s only palladium mining company. “It doesn’t matter if you are talking about copper, iron ore, or platinum and palladium.” – Bloomberg