Palladium Precious Metal Outlook, Mid-2013 Forward

Smart Finance

At the beginning of calendar year 2013, both Palladium and Platinum were being projected to spike higher in precious metal spot price throughout the New Year, both due to industrial demand as well as market speculation. Particularly in the case of Palladium, the available inventory of stock was quickly drying up as mining labor problems in South Africa and a dwindling supply coming out of Russia were both squeezing the supply side. Add to the 2013 situation that emerging countries and industrial demand for Palladium was spiking, it seemed like the perfect scenario for the precious metal to double its valuation. However, that didn’t happen. It’s now July 2013, and instead of growing in value Palladium was actually dropping for a while. Here are some of the reasons why.

Money Wise

Industrial Palladium Demand Fell

There is no question that Palladium supply has gone down and will continue to stay in a slump. BNP Paribas’ market analysts predict the shortage of production will definitely continue for the next two years. Ironically, despite all the signs saying that industrial demand was going to increase with a shortening supply line, driving prices up, demand relaxed and has instead matched the rate of supply decline. One major factor was in Europe.

Europe’s automakers have been a major player in Palladium demand in terms of needing the metal for emission catalytic converters and similar parts, and the rest of the industrial world wasn’t far behind. Even as late as April 2013, analytical reports were still expecting automotive production worldwide to continue pushing demand further and further up for Palladium catalytic consumption (http://www.monex.com/gfms/palladium.html). This shared view was supported by increasing car sales in both the U.S. and China as well as in increased diesel engine production.

However, very much unexpected by market watchers, European automakers instead scaled back on their needs, probably alarmed by early reports of dwindling Palladium supply on the open market. Rather than be jammed on higher pricing, some of the companies may have instead decided to reduce ordering and stretch out their current resources behind the scenes.

Another side market has also been producing “new” supply, recycling core elements from old vehicles. Europe is light years ahead of other nations when it comes to getting old cars off the road. Thanks to European Union rules and regulations, many medium old cars are being yanked off the road and scrapped before they breakdown completely, some with some good years still left in them. That has created a secondary market of recycle auto parts that can still be used in aftermarket repair. That in turn reduces demand for new Palladium as a result. Thrifting and substitution have now become big movements among major Palladium industrial consumers.

The raw material mining side is also expected to pick up again, although Palladium mining production is still expected to be in deficit from previous years’ new supplies for at least until 2015. South Africa is expected to resolve its labor issues eventually, allowing production to pick up again and reducing processing delays. However, it will take time to recover lost ground. Further, the Russian side of the supply picture is still expected to be in a declining state, which South African mines can’t fully offset. Much of the Russian picture comes from stockpiles mined decades ago when chasing other elements, and that dormant inventory is simply reaching the bottom of the barrel now.

Market Speculation is Wandering

Palladium valuations have also been hit by the deflation of Gold. While there is no direct relationship between the two metals, speculators tend to move in ripple formation through precious metals. As gold has been falling over 2013, with some significant dips, Palladium has been affected as well. The general improvement in global economies as well as interests moving investment out of metals and into other areas now being seen as profitable have both contributed to declining Palladium investment demand. That in turn has also contributed to lower spot pricing for the metal.

The major exchange-traded fund, or ETF, for Palladium has generally been a bellwether for tracking the market spot price for the metal. With the ticker name “PALL,” the ETF in mid July 2013 hit a valuation of $73 per share, or $730 an ounce of Palladium. This level is well below the 2011 figures above $800 a share, but at least Palladium’s value has climbed back up significantly from the doldrums of $650 a share in April 2013 when it dropped along with gold and market panic (http://finance.yahoo.com/echarts?s=PALL+Interactive#symbol=pall;range=2y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;).

BNP Paribas is now currently projecting that Palladium’s valuation will remain stagnant, generally floating in a range between $800 and $1,000 through 2014. Citigroup has also agreed with the estimate, at least through 2013, pegging Palladium at an average value of $850 per ounce for the rest of the calendar year.

In Summary

So does Palladium as an investable precious metal still make a good portfolio play for the rest of 2013? If one simply tracks the metal to others like gold, the response may likely be it’s time to get out and sell. However, most market watchers are in agreement the metal will continue to go up over the long-term because the supply issues have not been completely resolved. Eventually, thrifting and recycling will eat ???? up existing inventory and new demand will begin again. Many assume South Africa will have its mines in working order again with labor issues, but there’s still a big “if” in that assumption. Much depends on what wage concessions are agreed to with striking miners. Finally, as economies continue to improve, demand for vehicles will pick up again, increasing industrial metal demand over prior year production.

In the short-term, however, Palladium investors stand a potential risk of downside. The market through the rest of 2013 is fairly volatile, and the major demand players are not following expectations. That could mean a good entry point for buyers who want to pick up a position in the metal, but it’s not such good news for those trying to unload with a profit. Investing folks probably just need to be patient and wait out the ambiguities for now.

An easy way to track what’s happening with Palladium going forward involves utilizing the resources and benefits of Internet investment sites like . This website provides multiple free research resources and articles on precious metal markets and current news, allowing investors to keep up with changes as they are happening versus weeks after the fact. For those want to be in the know, the information can be very valuable, particularly during a period when Palladium valuations could swing either way.

Palladium Precious Metal Outlook, Mid-2013 Forward
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