Price of palladium falls 1.75% and is below the $1400 level but is still more valuable than gold which it overtook for the first time in 16 years in early December.
Palladium’s bull-run is due to demand outstripping supply as the metal is mainly used for catalytic converters in petrol-powered motor vehicles. Furthermore, with European consumers shift away from diesel vehicles, China preparing to meet new Euro 6 emissions standards which requires more palladium to filter out harmful emissions and increasing trend towards hybrid vehicles which requires the metal to be used in both the engine and battery, we continue to expect demand for palladium to grow for a couple of years before plateauing. We have a 12-month target of between $1,250 and $1,350.
Falling car sales could hurt palladium sentiment
As the global economy slows, we are seeing car sales falling; especially in China where sales fell for the first time in almost three decades in December as the end of tax breaks for new cars, declining consumer confidence due to domestic economic slowdown and a falling stock market have all contributed to reduced demand for new cars in the world’s largest market.
Another risk to the price of palladium is car manufacturers switching to platinum, which is currently trading around $800. Our 12-month target is between $750 and $850.
Although weaker global car sales could hurt sentiment for palladium, medium-term with stricter emissions standards, a shift out of diesel-powered vehicles and continued supply constraints coming out of the mines in Russia and South Africa where most of the world’s supply comes from, the price of palladium should continue to remain high. Longer-term, we expect growth in car sales coming from electric vehicles with many in-expensive cars being released this year. Electric cars do not use catalysts and therefore less demand for palladium.
|Metal||Unit||Spot (25/01/2019)||Range (2019)||Forecast (2019)|
|Gold (XAU)||USD/t oz||$1,286.40||$1,250 – $1,350||$1,300|
|Silver (XAG)||USD/t oz||$15.32||$14 – $16||$15.50|
|Platinum (XPT)||USD/t oz||$803.25||$750 – $850||$800|
|Palladium (XPD)||USD/t oz||$1,326.02||$1,200 – $1,450||$1,280|