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Palladium Rebounds 2% As Metal Flirts With $2,300 Again

February 10, 2020 at 17:45 by Andrew Moran

Palladium futures are rebounding to start the trading week as the metal is flirting with $2,300 again. After a meteoric ascent to kick off the new year, palladium prices have somewhat stalled since the end of January as investors hit the sell button and take profits. With supply issues still paramount in the palladium market, are prices set to test the forecast of $3,000?

March palladium futures advanced $47.00, or 2.13%, to $2,257.20 per ounce at 16:25 on Monday on the Comex division of the New York Mercantile Exchange. Last week, palladium recorded a tepid 1% gain, but it has soared 18% year-to-date. Over the last 12 months, the metal has spiked 66%, and the consensus is that you can expect even more gains.

Some analysts contend that palladium remains in a speculative bubble that could blow up and give the bearish bets an easy victory. But others posit that the metal commodity is going through a supply and demand problem, though it is likely that some speculators sold off and ran with the profits, which might explain the pause over the last two weeks.

Today, palladium is mostly used in catalytic converters in gasoline-powered automobiles, something that allows automakers to meet tighter emission standards mandated by governments. It is estimated that 85% of palladium demand originates from the auto industry. With output to slump and demand to increase for the ninth consecutive year in 2020, experts are projecting prices to hit $3,000 before the year is over.

How likely is palladium to reach that historical level? Many governments, including China, India, Europe, and the US, are implementing stringent emission regulations. If there is not enough palladium available, prices will continue their record-breaking ascent. But how long until carmakers seek alternatives?

A recent Citibank report found that the palladium prices and squeezed cash flows cost the auto industry $18 billion last year. Researchers noted that car companies could substitute palladium for platinum, but this has been stated many times over the last 18 months, and vehicle manufacturers have yet to bite.

Citi analyst Max Layton wrote:

By some accounts 25 percent?[of the palladium] can be substituted for platinum in gasoline vehicles in 18 to 24 months and this may already be in the pipeline. In this case, this could gradually affect the market from 2021 and would likely substantially affect the market from 2022.

Since these companies are investing in electric vehicles, it may be some time before they are incentivized to switch to the sister metal.

In other metal commodities, April gold futures advanced $5.70, or 0.36%, to $1,579.10 per ounce. March silver futures picked up $0.10, or 0.58%, to $17.795 an ounce. April copper futures were flat at $2.555 per pound. March platinum futures tumbled $3.30, or 0.34%, to $965.90 per ounce.

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