Kitco News reported that a renewed focus on reportedly declining Russian stockpiles sent palladium prices sharply higher so far this month with the metal hitting an 11 week peak on Wednesday.
Traders and analysts said that the market has also drawn support from demand factors such as improved prospects for auto sales and the start of buying ahead of the Chinese New Year next month.
The most active Nymex March palladium contract has been as high as USD 689.90 an ounce its most muscular level since September 21st 2011. At Wednesday’s peak it had gained USD 77.30 since the November close.
Early this month, Mr Anton Berlin marketing director of Norilsk Nickel said that his company believes Russian stocks are almost depleted. Russian exports would fall to 150,000 ounces annually for 2012 and 2013. Norilsk Nickel expects palladium to be in a deficit next year.
The Russian government does not release data on the amount of palladium in state stockpiles. If it is near depletion, this would reduce the amount of palladium available to the market each year.
Mr Bill O Neill one of the principals with LOGIC Advisors said that “There is growing evidence that Russian supplies are dwindling and we’re going to see some supply tightness in the market. Russia, of course has been the No 1 seller or provider of palladium, so it’s very, very crucial Russian supplies are really the key to the rally.”
Last month, Mr Johnson Matthey released a report saying the palladium market would be in a surplus of 725,000 ounces in 2011. The balance included estimated sales of 750,000 ounces from Russian state stocks, meaning the market would be nearly balanced without those supplies.
Mr O Neill also cited improved auto sales in the US as one of the influences behind the recent uptick in palladium. The main industrial use for palladium is auto catalytic converters. The seasonally adjusted annual rate of sales in November was 13.6 million units, up from 12.28 million in November 2010. We’re probably going to see palladium demand this year about 6% to 7% higher than it was in 2009 when all is said and done.
Further, analysts with Barclays Capital said that there are signs of strength in Chinese auto sales. The country has become the world’s largest auto market. Steel also cited ideas in the marketplace that there is a continuing shift in which auto makers are trying to use more palladium in catalysts, whenever possible rather than more-expensive platinum.
Mr Afshin Nabavi head of trading at MKS Finance said that meanwhile buying interest for palladium appears to be picking up out of the Far East ahead of Chinese New Year celebrations next month. This is a period that typically leads to improved Chinese demand for gold. But with gold prices at historically high levels, some buyers may view palladium as a substitute. China is the world’s largest market for both palladium and platinum jewelry.
Barclays in a daily commodity research report said that palladium exchange traded product outflows have hit some 21,000 ounces so far in December following outflows of 84,800 ounces in November. Total holdings are at their lowest since March of last year,
Commerzbank said that it is interesting that the latest price rise was not accompanied by corresponding inflows into the ETFs. Holdings of palladium ETFs have continued to fall which would indicate that short coverings are the main driver of the climbing prices. Short covering is a form of buying in which traders are offsetting, or exiting, positions in which they previously sold.
Mr Nabavi pointed out that palladium’s rise has come during a period of declining liquidity ahead of year end. By somewhere around December 16th to 21st 2011 much of the activity likely will be book squaring rather than fresh positioning ahead of year end.
(Sourced from kitco.com)
