Palladium price forecasts have continued to fall as the metal continues to feel pressure from the broader commodities price rout. William Tankard of Thomson Reuters GFMS shares his thoughts on palladium and gives an updated price forecast for the year.
For our 2016 palladium outlook, see: Palladium Price Forecast 2016
Palladium stood out as a bright spot in 2014, but 2015 has been a bit of a different story.
Like its sister metal platinum, palladium has not been immune to the broader commodities prices rout, and has lost nearly 20 percent so far this year. Currently, it’s trading at around $649 per ounce.
William Tankard, director of precious metals and mining at Thomson Reuters (TSX:TRI,NYSE:TRI), said that his firm “did not foresee the severity of the fall being as bad as it has been, for palladium in particular.”
Pressure on palladium in 2015
ScotiaMocatta predicted that demand would rise for palladium in 2015, but investor sentiment has weighed heavily on the metal. Reuters reported that platinum and palladium ETFs were coming up on their biggest monthly outflows since 2010 for October, and Macquarie analyst Matthew Turner told the news agency that the pullback could be due to investor jitters.
“For palladium, I think it’s more that people were taken by surprise by the move down earlier this year, and were unnerved by it,” he said. “When it bounced back, they may have thought it was a good time to get out of the market.”
Echoing Turner’s statements, Tankard also admitted that commodities prices do not necessarily always reflect long-term fundamentals.
“Investment sentiment has a huge part to play in that,” he said. “And I think that that’s exactly what we’re seeing. Over the course of this year, there’s been a number of factors that have led to market uncertainties. Some of these commodities [have been] selling off very aggressively. Palladium’s been caught up with that.”
Pointing to specific factors, he noted that the US Federal Reserve continuing to hint that it may tighten interest rates has put pressure on metals, while a stronger US dollar and concerns over Chinese demand weighed on platinum and palladium over the summer.
Fundamentals going forward
That said, Thomson Reuters still believes the fundamental picture for palladium looks “very constructive.”
“We think that there are going to be several years from 2015 onwards where palladium sees an ongoing deep physical deficit — so around a million-ounce shortfall per year,” Tankard said. Part of that is due to continued rising demand for the metal, particularly from China.
“On the palladium side, one of the key areas of demand growth over the coming years is likely to be China’s ongoing adoption of more stringent emissions regulations,” he said.
A large portion of the world’s palladium is used in catalytic converters for vehicles, so combating pollution will mean increased demand for palladium. On top of that, Tankard added that China’s growing population is expected to buy more and more cars as economic development continues in the country.
“[That] places palladium fundamentally in an attractive position,” he said.
Palladium price forecast
At the end of 2014, many were calling for palladium to average around US$900 for this year. Not surprisingly, palladium price forecasts have fallen on the back of the metal’s continued drop in 2015.
In July, BMO Capital Markets revised its 2015 palladium price forecast down to US$778 from US$818, and reduced its 2016 forecast from US$880 to US$820. Similarly, UBS cut its palladium price forecast from $850 to $770 for the year.
Taking an even more recent look at price forecasts, Tankard said in October that Thomson Reuters is calling for an average palladium price of just below $700 for 2015, picking up marginally to average around $725 for 2016.
Certainly, while strong fundamentals persist for palladium, it appears that the metal isn’t quite out of the woods yet. Since hitting a low of $532 on August 26, the palladium price has gained 21 percent.
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.