By Michelle Smith — Exclusive to Palladium Investing News
However, the futures market, which recently saw weeks of retreat by the longs and growth among the shorts, shows that there are still investors prioritizing short-term factors.If people remain focused on the fundamentals, perhaps such volatile attitudes will change and the currently weak prices will serve as a ticket for more people to get into the market and ride it for the long haul. Such a change could also prevent the fatigue of entering and exiting with the headline chasers. Palladium usage Palladium is a metal used to make jewelry and a wide range of other products in the chemical, medical, and electronic sectors. Its largest source of demand, however, is for use in autocatalysts, and is virtually cemented into place by increasingly strict environmental regulations. Palladium is used to reduce hydrogen emissions. It does so more effectively in gasoline engines than in diesel engines. Since it is much cheaper than platinum, which can also be used for this purpose, palladium is dominant in gasoline autocatalysts. And given the cost advantage, it is also used in the largest quantities possible to substitute for platinum in diesel engines. Overview of vehicle market Palladium's uses make it highly sensitive to economics, especially any movements involving or impacting vehicle sales. As China and the US, the two largest auto markets, are both gasoline dominant, the market pays special attention to relevant news from these nations. Concerns that China is slowing down have weighed on palladium. In a 2012 market report, Deutsche Bank noted the possibility of demand and pricing risks in Europe, Brazil, and China. And the Chinese auto market did indeed start the year in a weak state, though sales picked up in March. The US auto market is off to a good start, as projected by Deutsche Bank, which noted that auto lenders, including those servicing subprime buyers, used securitization to raise $67 billion for the year, with further growth likely. Johnson Matthey reported that March car sales increased for automakers or markets in South Korea, India, Germany, the US, South Africa, and the UK. Autocatalyst demand is expected to continue growing as rising incomes in emerging markets allow more personal vehicle purchases. Also, in addition to its normal appetite for vehicles, the US has a significant aged fleet traveling its highways, and analysts expect consumers to go into replacement mode in the near future.
Of the 6.91 million ounces of supply that Barclays forecasts for 2012, automakers are expected to use 6.24 million ounces.Palladium supply However, Barclays forecasts that supply from mines and stockpiles will drop 6.9 percent this year. South Africa, one of the world's largest producers, is playing its part to make that prediction a reality. The nation's PGM miners are seeing their production figures hammered by labor strikes and safety stoppages, both of which are expected to be an ongoing problem. Recently, quarterly production declines have also been reported at mines in Canada and the US. The Russian government has kept the market out of deficit territory in the past by selling palladium from its stockpiles. For years, there has been speculation about how long that will continue. Wiktor Bielski, Global Head of Commodities Research for VTB Capital, offered some certainty. “Gokhran which is the official government stockpiling agency in Russia announced last year that this year will be the last year of official stockpiles sales although there may be some old reprocessed materials that they may sell next year. But there, we're talking very, very small quantities,” he said. Many believe sales from the stockpiles will end when they are depleted, but that is a matter of sheer speculation. “They [Gokhran] didn't however say that they would be stopping stockpile sales because they've run out. They just said they will be stopping,” Bielski added. He said that it is likely that Russia will keep some palladium that it deems strategic, but how much is difficult to estimate. VTB Capital also believes that a deficit will occur this year, perhaps as much as half a million ounces. However, investors looking for rewards in the short term may still be disappointed. Bielski said that there are independent stockpiles of platinum and palladium in existence, though no one knows how large those are. And, in the early years, deficits could probably be met from that supply, assuming the holders of that metal are prepared to use it for those reasons. But, he warns that those stockpiles won't last long.
“There is going to come a time when there is going to be a very serious imbalance [in the palladium market] because we've relied for 20 years on those [Russian] stockpile sales meeting the gap [between supply and demand] and those stockpile sales won't be there anymore,” Bielski said.“Palladium will be a very interesting market in the next 3 or 4 years,” he added. Securities Disclosure: I, Michelle Smith, do not hold equity interests in any company mentioned in this article. Are Palladium Investors Employing the Best Strategy? from Palladium Investing News