Palladium prices are shattering record highs and investors are betting that tight supplies mean the bull run is just getting started.
The metal, used in pollution-control devices in cars, has jumped almost 9 percent this year in New York, the best performance among major metals.
Demand is roaring thanks to China, which is on a mission to reduce smog emissions. Tougher pollution standards mean automakers are using more of the commodity in catalytic converters.
Palladium futures in New York jumped 5.2 percent in the week ended on Friday to US$1,154.60 an ounce.
Global palladium production is falling short of the robust demand and market forecasters, including Citigroup Inc, are projecting further price gains ahead.
Hedge funds are also wagering on an extended rally, with the biggest positive bet on the metal since early March.
“The market has a very positive fundamental outlook,” said Maxwell Gold, director of investment strategy at Aberdeen Standard Investments, which oversees US$730 billion. “We’ve been dealing with supply deficits going on eight years and that’s expected to continue. Supply’s certainly been an issue on the mining front as well as the draw-down of existing stockpiles.”
Palladium is a thinly traded market. Much like sister-metal platinum, its production is extremely concentrated, with Russia and South Africa collectively producing about three-quarters of the world’s mined supplies.
Almost 70 percent of palladium demand comes from the auto industry, according to researcher CPM Group.
Car sales have stayed relatively strong in most places, helping to insulate prices from the hand-wringing over global growth that has dragged down many industrial commodities.
Supplies are so constrained that users have turned to exchange-trade products to borrow the material they need. This has pushed palladium holdings in exchange-traded funds to the lowest since 2009 as manufacturers seek supplies above ground, Gold said.
Hedge funds are adding to their bullish outlook. In the week that ended on Tuesday, money managers increased their net-long position, the difference between bets on a price increase and wagers on a decline, for a second straight week to 12,837 futures and options.
Other metals:
Spot gold rose 0.7 percent to US$1,221.83 an ounce, up 0.8 percent for the week.
Copper on the London Metal Exchange gained 0.3 percent to US$6,205.00 per tonne.
Silver gained 0.8 percent to US$14.38 an ounce.
Additional reporting by AP
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