Johnson Matthey, HSBC: Higher Palladium Price Forecast Through 2017

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At least among the precious metals, palladium appears to be the darling among analysts this year.

Both Standard Bank and HSBC are expecting higher prices in the period between 2014-17 as investors are encouraged by a tightening supply market, as the overall market moves further into deficit, and rising global auto sales.

A Look At Palladium Supply

Firstly, the supply side. Both Johnson Matthey and HSBC are seeing a decline in output from traditional sources. Russian stock sales have been declining for years; from a peak of 1.5 million ounces in 2007, state sales have declined to just 1 million ounces last year.

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Most believe Russian inventory is running out and will cease to be a meaningful percentage of global supply going forward. At 1 million ounces, current stockpile supply equates to just 2 percent of gross global supply, down from 17 percent in 2007.

palladium supply graph

Source: HSBC

Expansion at South Africa’s Bushveld Complex and Zimbabwe’s Great Dyke will make up for some of this, particularly for palladium, as the resources are comparatively richer in palladium than platinum compared to the mainstream Merensky and the Upper Group 2 Reefs.

Palladium Demand Down on Investments

Demand, meanwhile, has been down last year as investment demand dried up.

Johnson Matthey is quoted by HSBC as estimating net demand was down 5.9% to 7.17 million ounces largely due to a lack of investment demand. Optimistically, both banks expect auto demand to turn this around in 2014 with a rise of 7.3% predicted by HSBC to 7.69 million ounces.

The main driver for this is global light auto production, which the bank sees rising 3.7% in 2014, led by Chinese growth of 8% and tighter emission standards globally. In 2013, ETF purchases of palladium were negligible, but the proposed launch of the ABSA Palladium fund in Q1 of this year is expected to change that picture and promote significant physical uptake.

palladium deficit graph

Source: HSBC

HSBC says that based on their outlook for strong demand growth and marginal recovery in supply, they forecast a widening of the supply deficit during 2013-17, averaging 15% of the total demand and rapidly reducing the availability of above-ground stockpiles.

What This Means for Metal Buyers

As a result, they see the price rising to an average of $825 per ounce this year and $900 per ounce in 2015. Standard Bank agrees that the price has more upside potential than down, and suggests over the short term a run-up to $750 per ounce is likely.

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Comments (3)

  1. Lester says:

    From 1.5 million ounces in 2007 “down” to just 100 million ounces is – to say the least – quite a feat!
    I don’t know if I should hire this expert or obtain a restraining order against him!
    Or maybe I need some remedial arithmetic tutoring! I don’t know, I’m torn.

  2. Ohhh, Lester [sigh]…what you really need is some tact. (And don’t quit your day job; snarky comedy is hard work. Keep polishing the act! We believe in you.)

    Thanks for the heads-up – correction has been made – and thanks for reading!

  3. Charlz says:

    Do a million ounces really represents 2% of gross global supply?

    Could you explain how and where you come up with a 50 million ounce gross global supply for palladium?

    Also, could you provide sources as to why you say the Russian state sales were a million ounces in 2013. Analyst’s often use Swiss import data as a proxy, however, 2013 had low imports other than 2 month. The months with larger imports were of a different form (powder) than the state has sold in the past, leading some to question if they were state sourced.

    That aside, as I recall, the Swiss data for 2013 was still less than a million. oz.

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