Palladium prices could exceed platinum prices and reach $1,000/oz in the "not-too-distant future" on constrained output and steady demand from the auto sector, analyst Beresford Clarke of UK research firm SFA (Oxford) said Sunday.
"We're right on the cusp of platinum/palladium parity; we were almost there Friday," Clarke said in a presentation at the International Precious Metals Institute meeting in Florida.
NYMEX palladium for September delivery rose nearly $40/oz over three hours during London trading on Friday, but fell $45/oz in early New York trading over one hour.
For the day, September palladium closed $9.70/oz higher at $856.20/oz, while NYMEX platinum for July delivery closed $2.20/oz higher at $940.30/oz.
Palladium is expected to remain in deficit this year as it has the past five years, despite a slowdown in Chinese auto sales. Chinese auto sales last year were driven in part by various tax incentive programs that are expiring.
"With the removal of some of those subsidies, Chinese sales are evaporating in 2017," he said. "In demand terms for palladium, despite the seminal price performance in palladium we've seen over the past week, we think demand in probably down about 1.1% for this year."
"Nevertheless, getting this year out of the way, we do see a return to [demand] growth with cumulatively about 350,000 oz by 2020, mainly led by the recovery in China [auto sales]," he said.
The auto sector accounts for about 75%-80% of global palladium demand, and about 40%-45% of platinum demand. Catalytic converters in gasoline-powered vehicles, like those driven in the US and China, use mostly palladium to control auto emissions.
SFA (Oxford) estimates the gasoline-powered vehicle sector will consume about 6 million oz by 2020 and 6.5 million oz by 2025.
But continued platinum price declines and stronger rand/dollar exchange rates could jeopardize palladium mine output because producers will shutter production of both metals, Clarke said.
About 400,000 oz of platinum production in South Africa has already been lost due to mine closures, Clarke said.
Stalled projects around the world account for another 870,000 oz of lost platinum production, while unfinished mines account for another 600,000 oz of lost capacity, he said.
"Accounting for mines all around the world, there is at least another 200,000 oz of palladium supply at risk." New palladium projects should bring in about 845,000 oz by the 2020s, Clarke said.
