Palladium’s hot rally may be coming to an end

LONDON: Palladium has been one of the hottest commodities for a while now, but analysts think this year may be the time to book profits.

Prices have rallied to fresh records on tighter supplies of the material mainly used in gasoline vehicle autocatalysts. But analysts surveyed by Bloomberg see the metal ending the year 15 percent lower than now, partly as shortages are priced in and car sales in key markets slow.

Prices have jumped in recent years as autocatalyst manufacturers scrambled to get hold of the metal to meet more stringent emissions controls, particularly in China. That’s also helped fuel even bigger gains in lesser known sister metal, rhodium. For palladium, scarce supplies have created a lucrative business where investors lease out metal from exchange-traded funds to meet demand.

“Palladium is the most overrated precious metal,” said Georgette Boele, co-coordinator of FX and precious metals strategy at ABN Amro Bank NV.

“First, the shortage is more than reflected in the price. Second, prices don’t yet reflect the weaker outlook on the global car sector.”

Palladium may fall to about $1,350 an ounce by year-end, down from $1,583 now, according to the average estimate of nine analysts surveyed by Bloomberg.

That would wipe out much of the 25% rally so far this year. Three analysts expect prices to end the year higher than now.

Demand for autocatalyst metals has been even more supportive for rhodium, which is much less liquid and not traded on an exchange. Prices are up 34 percent this year to $3,300 an ounce, according to Johnson Matthey Plc. Mined with other platinum-group metals, rhodium should see long-term structural deficits as supplies dwindle and demand rises, said Nicky Shiels, a commodity strategist at Bank of Nova Scotia.

Analysts are mixed on the outlook though.

Two surveyed by Bloomberg see prices falling by year-end and two expect further gains. Capital Economics Ltd’s Ross Strachan is among those who remain cautious.

“The rally in the price of both these metals has become significantly overdone as fears about supply have become exaggerated,” Strachan said.

“In the case of rhodium, there have also been surpluses in recent years which means the amount of stock is still considerable.” - Bloomberg