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Palladium strong but may get ahead of the fundamentals

Palladium strong but may get ahead of the fundamentals

Wed Dec 06 2017


Palladium prices may remain robust in the short term due to strong supply/demand fundamentals but may eventually pull back due to speculative activity, said Mitsubishi.


The firm points out that gross bullish positioning in the Nymex futures is at 83% of the all-time high. When this hits extremes in either direction, any market may reverse course for a while anyway, as speculators unwind positions.


“Though palladium’s supply-demand fundamentals remain extremely strong and are underpinning the ongoing tightness in the market, we believe prices have got somewhat ahead of the fundamentals and sooner or later may pull back both in relative terms and against platinum, driven mainly by speculative investor activity,” Mitsubishi added.


That all being said, in the near term, there are few reasons to question the ongoing upwards trend; auto-catalyst demand remains strong and that continues to manifest itself in tight physical availability and a premium in sponge over ingot.


Growth in the market share of gasoline vehicles continues to favor palladium demand over platinum, mine output continues to be constrained and recycling of palladium has not massively increased despite high prices.


At some point down the road, investors become bearish on palladium if prospects for battery electric vehicles improve, Mitsubishi pointed out.


Battery-powered are expected to cut demand for palladium in auto catalysts. “Palladium is ultimately a one-trick pony that is over-reliant on an area than may be in long-term decline,” Mitsubishi noted.