Palladium price forecast

• Updated

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

Despite an autumn slump in 2021, palladium is having a decent year. It is almost worth twice as much per ounce as its old adversary, platinum. The precious metal is staying ahead of gold, but not by much.

How much is palladium worth?

While in January 2016 a troy ounce cost just $465, the palladium spot price is trading at almost $1,900 (£1,425) in late November 2021.

That’s an incredible rise of more than 300% in almost six years. Let’s see what is driving it.

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% 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 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% in 2016 and a further 60% in 2017.

What’s more, tighter regulations in Europe have clamped down on the highest 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% 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% of the global output of palladium.

Palladium is considered a ‘boutique’ metal, as its market is relatively small. That 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 has 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. Same for police departments around North America.

But demand keeps on increasing. China imposed stricter emissions regulations on new cars. 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%.

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.

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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 redesigned so that platinum could take its place. While the cost to do so would be high, with palladium almost twice as much as platinum at nearly $1,900 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 Europe and China and automakers are looking to reduce palladium in favour of platinum, long-term.

In an October 2021 Nasdaq commentary, StoneX Financial Ltd  analyst Rhona O’Connell remarked on the headwinds for palladium.

“With ~80% of palladium demand accounted for by the automotive sector, the semiconductor chip supply chain hiatus was permanently on market participants’ minds (and still is),” O’Connell wrote. “The news out of the auto sector remained naggingly somber, with production cuts taking the headlines while hard data coming through in the form of corporate results, from companies such as Intel, for example, showed how the shortage has started to affect laptop sales as well as impinging on communications companies.” 

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??

A Reuters poll of 27 analysts and traders at the end of October 2021 predicted $2,150 an ounce in 2022.

Longforecast predicts it will dip to $1,295 by mid-2022 and recover as the year goes on. It doesn’t expect a return to 2021 levels until early 2024.

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

In July 2021, Suki Cooper, a precious metals analyst at Standard Chartered Bank, explained to FXLeaders:

“The palladium market is set to remain undersupplied, while platinum is likely to tighten in (the second half of) 2021, as the substitution risk gains momentum towards the end of the year.”

FURTHER READING: Silver price forecast 2020 and beyond

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