Palladium investors are keeping record bets on a further slump in the market as broad-based weakness plagues the precious metals complex, but some analysts say the metal’s slide to 3 1/2-year lows is overwrought and a supply deficit will help the metal reclaim lost territory.
Spot prices of palladium, mainly used in emissions control systems for cars, trucks and other vehicles, have dropped more than 22 percent this year – the most among precious metals. Gold has fallen 7.6 percent, silver is down 6.1 percent and platinum has tumbled 20 percent. The commodity backlash has been fuelled by the prospect of higher U.S. interest rates, a stronger dollar and weaker Chinese demand. Short positions in palladium futures on the New York Mercantile Exchange have hit all-time highs since June.
“Both platinum and palladium are under speculative shorting pressure, but the situation should reverse over the time,” said Singapore-based ANZ analyst Victor Thianpiriya. “The fundamental supply/demand for palladium will be in deficit over the next three years. We are quite positive about the prices of palladium over the next 12 months.”
Some analysts say palladium prices have fallen more than those of other precious metals due to higher volatility in a less liquid palladium market. Fundamentals for the metal remain strong, they say. Supply has been in deficit for the last five years, and will remain so in 2015 and 2016, according to data from the GFMS metals analysts team at Thomson Reuters. Demand for palladium in auto production is set to hit a record 6.8 million ounces this year and rise another 3.8 percent in 2016, GFMS estimates show.
Some analysts are bullish on demand for the metal even as the world’s biggest auto market slows. China’s car sales fell for the first time in 28 months in June, though first-half sales rose nearly 5 percent from a year earlier. “Sales were only negative last month; before that they were quite positive. We expect stimulus in China to give momentum to the economy and recover in the second half of the year,” said Simona Gambarini, a London-based commodities economist with Capital Economics.