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Palladium Tops $1,800 For First Time as Shortage Persists

Joe Richter, Yvonne Yue Li and Ranjeetha Pakiam
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Palladium Tops $1,800 For First Time as Shortage Persists

(Bloomberg) -- Palladium traded near a record after topping $1,800 an ounce as stricter air-quality rules increase demand for the metal used in vehicle pollution-control devices, with prices up more than 40% this year.

Spot palladium traded at $1,802.52 an ounce at 7:36 a.m. in London, after peaking on Monday at $1,810.20. The metal, mined in South Africa and Russia, has surged for the past six straight quarters.

While car sales have been sluggish, tighter environmental laws in Europe and China are boosting consumption, according to Australia & New Zealand Banking Group Ltd. Production is likely to continue to trail use through 2020, Bloomberg Intelligence analyst Eily Ong said in an Oct. 17 note. Speculation that the U.S. and China are moving closer to a trade deal also helped lift prices on Monday.

“The palladium rally continues to breathe on the oxygen being provided by the strong combination of very tight fundamentals and strong bullish momentum,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in an email. “The market has been in an upward sloping channel since early August with its current range being $1,725 to $1,820.”

Production of platinum-group metals in South Africa shrank the most in 18 months in August, while growth in Russia stalled last month, government data show. Power outages in South Africa have helped cloud the supply outlook.

“That tightness in the palladium market continues to be the main driver,” Ryan McKay, a commodities strategist at TD Securities, said from Toronto. “You also have the better sentiment in the industrial metals complex. That also helps.”

There’s been concern that palladium’s hefty price could prompt automakers to find lower-cost materials, but so far that’s not happening. Platinum, a cheaper sister metal used largely in diesel vehicles, is often mentioned as a possible alternative, but research has shown technological advances are needed before it can match the performance of palladium-based catalytic converters, according to Johnson Matthey Plc, which makes the devices.

In other precious metals, gold for immediate delivery was little changed at $1,491.88 an ounce, after falling 0.8% on Monday as optimism on trade-deal prospects helped push U.S. equities to record highs. Silver and platinum fell.

--With assistance from Nicholas Larkin and Krystal Chia.

To contact the reporters on this story: Joe Richter in New York at jrichter1@bloomberg.net;Yvonne Yue Li in New York at yli1490@bloomberg.net;Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Alpana Sarma, Jake Lloyd-Smith

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