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Palladium price forecast for 2020 and beyond

By Alison Hunt

More valuable than gold, palladium is one of our favourite materials for catalysts and electronics. But where is its price heading in 2020?

Palladium, it can be said, is having a good year. Not only has it surged over 48 per cent since January and earned the title of “best performing commodity” for two year’s running, but it’s now worth twice as much per ounce as its old adversary platinum. The precious metal is now even more valuable than gold.

Palladium price history

How much is palladium worth?

While in January 2016 a troy ounce cost just $465, (£354, €419) the palladium spot price this morning has hit a new high of $1872.34 (£1425.46, €1687.24).

That’s an incredible rise of 288 per cent in less than four years. What’s more, the rising trend looks set to continue.

5-year Palladium chart

So, what has caused palladium’s bull run?

The silvery precious metal is used in ceramic capacitors found in mobile phones and laptops, dental fillings as well as white gold jewellery, which is a gold-palladium alloy.

However, 80 per cent of palladium produced is used in the manufacture of catalytic converters for petrol cars, where it catalyses reactions that clean pollutants from the engine’s exhaust.

Palladium overtakes platinum

While palladium used to take second place to platinum, which is used in diesel car exhaust systems, the so-called “diesel-gate” scandal of 2016, caused by car manufacturer Volkswagen “rigging diesel-powered vehicles to cheat on government emissions tests” took its toll on the metal’s adversary.

The demand for diesel cars plummeted and the scandal earned Volkswagen an $18bn (£12m) fine. With buyers turning to petrol cars again, palladium found itself much in demand and saw it outperforming platinum for the first time, gaining 45 per cent in 2016 and a further 60 per cent in 2017.

What’s more, tighter regulations in Europe have clamped down on the most polluting vehicles. In 2018, Brussels took the drastic step of outlawing old diesel cars and trucks. This has had a dramatic effect on new diesel car sales in the EU, which dropped from 50 per cent to just under a third, between 2016 and 2018.

Hybrid electric cars

Palladium’s demand-fuelled rally has been further powered by the growth in hybrid electric vehicles, whose exhaust systems can often require more of the precious metal than conventional engines.

Palladium shortage

Palladium is extracted commercially as a by-product of nickel, copper or zinc refining with its main producers being Russia and South Africa. Russia’s major nickel producer Norilsk accounts for 40 per cent of the global output of palladium.

Palladium is considered a “boutique” metal as its market is relatively small, which means investment levels have a bigger impact than on larger markets, such as gold.

What’s more, there is currently a shortage in the world’s stockpile of palladium. It’s become so valuable that London’s Metropolitan police reported in 2018 that cars were being targeted by thieves looking to strip the precious metal from catalytic converters.

But demand keeps on increasing. March saw China announce that it was introducing stricter regulations on cars manufactured from 2020 regarding vehicle emissions. Indeed, demand for palladium has been maintained in spite of car sales falling in China due to the fact the amount of the metal required in the new catalytic converters has increased by 30 per cent.

In a bid to keep production lines running, car manufacturers have had to pay what it takes to produce their vehicles, fuelling palladium’s staggering price rise.

But could the palladium price news change in the future?

Shift back to platinum

While palladium is the metal of choice in petrol and hybrid catalytic converters, systems could be re-designed so that platinum could take its place. While the cost to do so would be high, with palladium now costing twice as much as platinum at over $1,872 an ounce, there may soon be a financial incentive for car manufacturers to make the change.

Ross Strachan, senior commodities economist at Capital Economics explained to Mining that “Higher loadings of palladium and rhodium are required to meet emission standards in forthcoming legislation in Europe and China, which has led some auto companies to increase work-in-progress stocks in preparation.” He added: “Some are looking quite aggressively at reducing their palladium usage in favour of platinum, but it is likely to be at least 2-5 years before we see significant changes”.

Palladium is also sensitive to geo-political tensions and particularly affected by the ongoing trade war between China and the US, which just happen to be the world’s two largest car markets.

Palladium price forecast

So, what about the palladium forecast for 2020, and beyond?

Many analysts believe that palladium still has a well-supported rising tendency and the gains could continue for some time yet.

Suki Cooper, a precious metals analyst at Standard Chartered Bank, explained to Kitco News in October: “Looking into 2020, gold still remains a standout across the precious metals complex. But, from a fundamental point of view, palladium has the most constructive outlook.”

Cooper believes that the market deficit is one of the main drivers pushing palladium prices higher, explaining: “Palladium has been in deficit for the past seven years and we are forecasting a deficit in 2020 and 2021. The market is structurally undersupplied.”

Tai Wong, head of base and precious metals derivatives trading at BMO agrees. He told Reuters: “There’s just a persistent, continuing shortage of the metal.

“The sharp rally does suggest a correction at some stage but the outlook is robust. Palladium could even hit $2,000 next year; perhaps even higher, but the path is unlikely to be smooth.”

Investing site Wallet Investor has a positive outlook, forecasting the commodity to be worth $2194.50 in one year, an increase of 19 per cent on today’s price.

FURTHER READING: Palladium breaks the $1,800 barrier

FURTHER READING: Silver price forecast 2020 and beyond

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