Palladium is the lustrous white metal resistant to corrosion used in car catalysts and jewellery. It has gone from $826.40 (R11956.30) an ounce in September and almost doubled to a high of $1600.50 on March 20, but since then it has tumbled to $1354 an ounce on Friday - fuelling fears that its rapid rally has run out of steam.
Rene Hochreiter, an investment analyst at Johannesburg-based Noah Capital, said the palladium price had fallen on hedge fund activity, and the drop would likely be temporary. “This is very indicative of hedge fund activity. I think the palladium price will remain high", Hochreiter said on Friday. Nearly 60percent of the global palladium production goes into catalytic converters and 95percent of the vehicles sold in Europe.
Last week, Anglo American chief executive Mark Cutifani said the rapid palladium price rise had created a bubble.
"I disagree. We have 3million ounces in platinum exchange-traded funds (ETFs) and 0.7million in palladium ETFs. I am not sure where these metals’ prices will run to when stocks run out,” said Hochreiter.
The palladium price drop was not expected to impact South African platinum producers as only 25percent of the country's platinum group metals (PGMs) basket comprises palladium. “That basket price has dropped a mere 3percent since the all-time high on March 20,” Hochreiter said.
Anglo American Platinum is the biggest palladium producer after Russia’s Norilsk Nickel.
The world's biggest palladium producers include Norilsk Nickel, Anglo American Platinum, Impala Platinum, Lonmin, Sibanye-Stillwater and Northam Platinum.
The record palladium and rhodium prices and a weaker rand have lifted the despondency of South Africa’s platinum industry, where palladium is a by-product of platinum mining. Coupled with the lower rand, which helps lower costs, Sibanye-Stillwater, Anglo American Platinum, Lonmin and Impala Platinum all recorded bumper profits in 2018.
Palladium has been a market darling after the price rally since last year as car makers grapple to meet demand.
Seleho Tsatsi, an investment analyst at Anchor Capital, said the car makers were likely to consider substituting palladium with platinum.
“The bigger the gap, the more likely car makers will substitute palladium with platinum. The higher the palladium price, the more incentive for substitution,” said Tsatsi.
The gold price also fell to $1306 an ounce on the stronger dollar on Friday.