Palladium Price Above $1,000 per Ounce for First Time Since 2001

Analysts attribute palladium's success to backlash against diesel cars in Europe, a supply deficit and improving vehicle sales in the US and China.

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The palladium price climbed past the $1,000-per-ounce level for the first time since 2001 early on Monday (October 16). 

It fell later in the day, reaching $977.80 as of 5:30 p.m. EST, but was still ahead of its sister metal platinum, which was changing hands at $933.20 per ounce. Last month, the palladium price exceeded the platinum price for the first time in 16 years.

Palladium is one of 2017’s best-performing commodities, having advanced about 48 percent year-to-date. That’s about 10 times the rise seen by platinum. 

Panmure Gordon analyst Kieron Hodgson told The Telegraph on Monday that palladium’s rise is directly linked to “the demise of the diesel engine and the resurgence of gasoline.”

Palladium is primarily used in gasoline-powered vehicle autocatalysts, while platinum is used in autocatalysts for diesel-powered vehicles. There has been a backlash against diesel-powered vehicles in Europe since the Volkswagen (ETR:VOW3) emissions scandal in 2015.

UBS (NYSE:UBS) analyst Joni Teves told the news outlet that palladium’s strength is also being driven by increasing car sales in the US and China and by a supply deficit. Teves noted that the market could hit a deficit of 830,000 ounces in 2017 as miners have curbed production.

Future palladium demand

Looking at Western Europe, analysts at Bank of America Merrill Lynch are calling for the market share of diesel cars to fall from 43 percent in 2017 to just 20 percent in 2023.

Citigroup (NYSE:C) has made a similar prediction, stating that their market share could decline by 50 percent by 2025, potentially removing between 300,000 and 600,000 ounces of platinum demand over the next 10 years. Platinum has been in oversupply, and a surplus is expected to last until 2020.

In contrast, the palladium shortfall is expected to widen by over a million ounces in 2018 before narrowing to 750,000 ounces by 2020.

That said, even as gas-powered vehicles become more dominant, there is some concern that sales could be impacted by the widespread adoption of battery-powered vehicles. Countries such as India, France, Britain and Norway are moving towards banning both gasoline and diesel vehicles, and about 10 other countries have set sales targets for electric cars.

As this transition takes place, hybrid vehicles, which tend to use gasoline, are expected to become more dominant, which bodes well for palladium demand. For now it remains to be seen how the electric vehicle revolution will impact both palladium and platinum long term.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.

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