Ouch! Possible Palladium Crash

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Precious Metals

Leading platinum refiner Johnson Matthey recently forecast that palladium prices could fall flat within the next six months.

“The dramatic fall in the palladium price in the third quarter of the year could yet pose significant challenges to the primary producers and make expansion less attractive,” the refiner released in an interim review. According to Reuters, Johnson Matthey expects the palladium market to reach a 320,000 ounce surplus this year. As the dollar sweetens and economic prospects sour, palladium could fall to 12-year lows at a surprising $125 per ounce.

On Tuesday, palladium fared better than predicted, settling at about $210 per ounce. In March, however, spot palladium prices hit a much-higher $520 per ounce, which makes the market turn all the more startling. As it becomes more and more possible that several major national economies will soon face a recession, companies now brace for an enormous impact on metals demand.

This year alone, “palladium sales from South Africa will decline to 2.525 million ounces, reflecting the challenges in the mining sector there this year,” Johnson Matthey explained, adding, “Declining North American vehicle production will cut 350,000 ounces from demand ….  [and] Russian supplies of palladium from primary production are forecast to slip slightly, to below 3 million ounces …. sales of palladium from Russian state stocks are expected to fall from 1.49 million ounces in 2007 to 800,000 ounces this year.”

Throughout the next six months, palladium prices are expected to range between $125 and $300 per ounce, and Johnson Matthey is quick to note that the negativity is possibly for naught: “Should economic conditions stabilize or improve, palladium’s strengthening fundamentals could see it trade as high as $300 within the same period.” After all, they said, “the palladium price responded to movements in currencies and prices of other precious metals in the first three quarters of 2008.”

Johnson Matthey opines that a reduction in recycling of old stock in China and good interest from manufacturers and retailers in the second half of the year will help boost demand there.” On top of that, demand for palladium jewelry is also expected to rise, in a reverse from the past two years.

See our post later this morning on the impact of palladium prices on the automotive industry.

–Amy Edwards

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