Most analysts and market commentators agree that palladium is looking likely for a price rise in 2014.
A number of reasons support this – but risks remain.
According to Forbes, last year at least 44% of the global supply of palladium came from Russia, some of it mined, some of it released from state reserves. Another 40% came from South Africa, with North America and Northern Europe coming in at single digits, so Russia and South Africa are key to the majority of supply.
On the plus side, as far as price is concerned, South African supply not only risks further worker disruption, but rising costs and falling ore grades make the economics increasingly difficult for some of the smaller players or marginal mines. South Africa has lost thousands of ounces of production this year and there is the ongoing threat of disruption next year.
The other large supplier to the market is even more opaque as to their position in 2014.
Russia has released quantities of palladium from its secret stockpile built up during the Cold War during the country’s efforts to develop cold fusion. The stockpile was estimated to be some 20 million ounces, although no one outside the Russian Finance Ministry really knows how much was there and – crucially – how much is left.
Speculation has been rife the last few years that the stockpile is finally coming to an end as dwindling sales have suggested the remaining inventory is being sold opportunistically, rather than as in the past when a budget shortfall needed filling. Johnson Matthey is reported as saying that 2012 stockpile sales came in at just 250,000 ounces, down from 775,000 in 2011.
This year the firm believes it could be just 95,000 ounces.
Meanwhile, demand is strong.
Catalytic converters used for vehicle emissions control account for two-thirds of the metal’s demand, weighted heavily to gasoline engines. That is important, because gas-powered vehicles constitute about 80% of the global fleet, and the two biggest (and currently fastest-growing) markets—the U.S. and China—heavily favor gasoline vehicles.