With the dollar price of palladium continuing to be supported around $815/oz, it's possible a large position is currently pressuring the front end of the curve, according to Citi Precious Metals Strategist Nell Agate, with investors continuing to mop up any dips.
"Palladium has thus far maintained a 'buy-the-dip' trend following the price correction during London Platinum Week [May 15]. In terms of exogenous data from the International Trade Centre we note Russian exports of unwrought palladium surged 180% last year to [circa]90 mt to meet demand," Agate told S&P Global Platts in an email.
"This may support the view that sources of physical metal have become more concentrated in recent months, so a large position could easily put pressure on the front end of the curve," she added.
Russia is the world's largest exporter of palladium, which is mainly produced as a byproduct of nickel.
Agate's comments came in reaction to an article published by Platts Wednesday.
Bankers and traders alike agree that palladium has been "tightening" over the past few months, with many saying that the metal hitting parity with platinum is now a case of "when not if."
But the reasons behind the move are leaving some market participants bewildered this week, with talk of a possible "squeeze" taking place.
One senior banker said that lease rates for palladium -- that at which interest is paid on a loan of the metal -- had gone up to around 4% from 1%.
"There's certainly a tightness, but I'm not sure if it's fundamentals or a strong hand," he said.
In a recent research note to clients, Agate pointed out a headwind "for continued palladium outperformance" could be scrap recycle rates of gasoline-driven cars.
Palladium is used in catalytic converters for gasoline-driven engines.
"Scrap recycle rates for palladium may be quicker than platinum as [circa] 70% of German cars are re-exported to Eastern Europe and Africa, lengthening the time diesel-engine vehicles get scrapped versus gasoline-engines," the note read.
Looking at the most recent US Commitment of Traders Report, Scotiabank said in a research paper that as of May 23 total commercial and non-commercial long positioning of palladium was down 3.4% on week at 29,000 contracts, however bets to the downside also eased 3.2% taking the next weekly change to minus 0.2%.
