Palladium Prices Spiking Higher on Auto Industry Demand

Thursday, 10 Jan 2013 08:05 AM

By John Morgan

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Increased demand from automakers, combined with slumping mine production, is driving up global prices for the scarce precious metal palladium.

Carmakers increasingly use palladium to make catalytic converters because it is cheaper than even more-precious platinum.

According to Barclays estimates, consumption of palladium will exceed production by 511,000 ounces in 2013 — or about what the car industry uses every seven weeks.

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Reuters cited a Morgan Stanley forecast that palladium shortages would continue until at least 2017, accompanied by a record annual price average next year.

Meanwhile, Morningstar noted more than 80 percent of the world's palladium reserves are concentrated in Russia and South Africa. It said supplies from Russian stockpiles declined 68 percent in 2012 and that output from South African mines also slid last year due to worker strikes and safety stoppages.

“An investment in palladium is an indirect bet on the automotive market,” Morningstar said in an article for Seeking Alpha.

An average auto-catalyst using palladium contains about 0.13 ounces of the metal, according to Reuters.

“A post-crisis rebound in demand from the automotive market is providing a near-term tailwind for the palladium market,” Morningstar reported.

“In the United States, pent-up demand for new vehicles is fueling strong sales growth. Our equity analysts see this growth continuing into 2013.”

Global car sales exceeded 80 million for the first time in 2012 and are expected to increase 2.4 percent this year, according to LMC Automotive, a U.K.-based research firm. Americans are expected to buy more cars for a fourth straight year, matching the longest run of gains since the 1940s.

Palladium was last quarter’s best-performing precious metal. Forecasters tracked by Bloomberg Rankings said palladium prices averaged at least $770 per ounce in the fourth quarter. But the metal is still 40 percent below the record $1,125 per ounce reached in 2001, according to Reuters.

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