Palladium prices rose to a near two-and-a-half year high on Thursday, above $780 a troy ounce, as strikes in South Africa and Russia-Ukraine tensions raised supply concerns.
A precious metal used in catalytic converters that clean car exhausts, palladium has attracted strong interest in recent years from hedge funds that anticipated that a decline in stocks would drive prices higher. While sharp rallies have quickly been followed by swift corrections over the past 24 months, continued industrial action at South African mines has provided new impetus for palladium this year.
The price has surged 9 per cent since December, and on Thursday rose as high as $781.50, a level briefly touched last March, and before that in September 2011.
“The constraints in South Africa are supporting the market,” said Robin Bhar, analyst at Société Générale. “There are also fears – not realistic in my view – about possible sanctions on exports from Russia because of the situation in Ukraine.”
Mines output from South Africa, where palladium is produced as a byproduct of platinum operations, last year accounted for about 37 per cent of global supply, according to Johnson Matthey. But the six-week strike over pay by tens of thousands of workers at mines owned by Anglo American Platinum, Impala and Lonmin will cut production this year.
Even assuming that the industrial action ends at the end of March, the lost output will be 280,000 ounces of palladium, or 4 per cent of the total mine supply of 6.5m ounces in 2013, Credit Suisse said in a note this week. While producers and consumers built up stocks last year in anticipation of the work stoppages, the strikes have “shifted the supply/demand balance as far as producers and prices are concerned,” the bank said.
Mr Bhar, of Société Générale, said that the launch in South Africa of a palladium exchange traded fund this year should boost demand for the metal, further supporting the price.
Outside South Africa, Russia is the main producer, with about 40 per cent of global palladium supply coming from Norilsk’s nickel mines. In addition, the Russian government holds a strategic stockpile of the metal that it built up during the decades of the Cold war and has released on to the market as demand for palladium in the automobile industry has grown. Analysts think that the Russian state stockpile is now all but exhausted.
Georgette Boele, analyst at ABN Amro, said that while there were still adequate palladium stocks elsewhere in the market, industrial consumers were “starting to get a bit nervous” about the strikes’ impact on supply. Recent positive economic data out of the US and EU, and improved investor sentiment towards other precious metals – especially gold – had also helped palladium, she said.
But the likelihood of investor-selling on the improved prices was likely to limit any further strong surge in palladium, Ms Boele added. Standard Bank is also cautious, saying that palladium was likely to “sacrifice current gains” once the strikes in South Africa ended.
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