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Palladium Plunges 3% As Industry Expects Temporary Global Surplus

May 1, 2020 at 17:33 by Andrew Moran

Palladium futures are falling more than 3% to finish the trading week as the rare metal recorded both a weekly and monthly loss. After looking like prices were headed to $3,000, palladium cratered amid the coronavirus pandemic that shut down entire economies. With many major markets gradually reopening, could the metal commodity climb back above the crucial $2,000 threshold in May?

June palladium futures plummeted $73.10, or 3.74%, to $1,882.90 per ounce at 17:13 GMT on Friday on the New York Mercantile Exchange. Palladium will post a 5.4% weekly loss, in addition to the 10% drop in April. Year-to-date, prices are down just 1.2%, but they are up more than 38% over the last 12 months.

At the end of February, palladium settled at a record high of $2,711.70 per ounce. Since then, it has slipped into negative territory for the year due to the automobile industry’s crashing demand. The sector, which accounts for about 80% of global demand, has come to a screeching halt, reducing the need for palladium.

In recent years, palladium has become a crucial metal for automakers because it is used in catalytic converters in gasoline-powered vehicles. In order to adhere to governments’ tighter environmental standards, companies install palladium to produce fewer exhaust gases – hydrocarbon, carbon monoxide, and nitrogen oxides. When demand outpaced supplies, prices surged to record highs.

Over the last month, mining operations have been idled due to either lockdowns or government restrictions. For example, South Africa, which is one of the top producers of both palladium and rhodium, has been under lockdown since the beginning of April and has halted production.

Overall, analysts warn that there could be a temporary surplus this year, despite earlier forecasts of a supply deficit. Norilsk Nickel, the world’s largest refined nickel and palladium producer, anticipates a tiny surplus due to slumping demand amid the COVID-19 financial crisis.

Rhona O’Connell, INTL FCStone’s head of market analysis for EMEA and Asia regions, wrote in a recent research note:

While the majority of market analyses have been pointing to persistent structural deficits in the palladium market, ourselves included, Norilsk Nickel caught the attention yesterday when forecasting a small surplus this year, albeit of only ~0.1M ounces.

The company’s outlook for light vehicle sales, predicated on numbers from LMC Automotive, a major consultant in the sector, involves a net overall fall this year of 21% with a 15% gain in 2021—which would still leave sales 9% below 2019 levels; our interpretation of this is that it would put palladium offtake at perhaps 7% below 2019 levels given increased loadings as regulations tighten.

In other metal markets, June gold futures picked up $6.90, or 0.4%, to $1,701.10 per ounce. July silver futures were flat at $14.975 an ounce. June copper futures tumbled $0.036, or 1.53%, to $2.3095 a pound. June platinum futures cratered $38.80, or 4.77%, to $774.20 per ounce.

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