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The chief executive of Anglo American, one of the world’s biggest palladium producers, said the rapid rise in the precious metal’s price has created a “bubble” but that its value is likely to remain high for some time.
Carmakers might consider replacing palladium with the cheaper precious metal platinum in their catalytic converters, Mark Cutifani told the FT Commodities Global Summit.
“It is a bubble but . . . as new models get developed in the auto industry, adjustments will take place and maybe there will be some substitution there,” Mr Cutifani said.
“Palladium will stick around these sorts of levels for a while because the cost of changing is probably not worth the change. But over time it will change and platinum will come roaring back.”
The price of palladium has risen more than 60 per cent over the past seven months to trade at $1,356 an ounce as supply has been unable to match demand from carmakers.
It is now more expensive than gold and much more than platinum, which trades at $841 an ounce.
That has led analysts to also say palladium is a bubble that could lead to a collapse in prices. “We think palladium is the most overrated precious metal, and we expect lower prices,” analysts at ABN Amro said this month.
At the turn of the century, the metal tripled in price before it fell back as carmakers started using less palladium in their exhaust systems.
Mr Cutifani said the high prices for palladium would not tempt the company to increase its production from South Africa. Anglo American is the largest producer of palladium after Russia’s Norilsk Nickel.
“The world doesn’t need a lot more PGMs [platinum-group metals] at the moment,” Mr Cutifani said.
“We will not do anything to interrupt the market and the market dynamic as much as we can.”
Although palladium is used in jewellery, chemicals and electronics, about four-fifths of annual demand comes from the car industry.
Johnson Matthey, one of the world’s leading makers of catalytic converters, expects appetite for palladium, which is mined alongside platinum and nickel, to outpace supply by 1m ounces this year because of the introduction of further vehicle emissions standards.
Analysts at Liberum said there was strong demand for palladium building from carmakers facing tougher vehicle inspection regimes in Europe and Asia. As a result, they were opting for higher palladium loadings in the catalysts they bought from manufacturers.
At the same time, recycling volumes could be constrained because Vale and BASF have closed refineries in Europe.
Traders said the supply overhang created by Russian government sales in the 1990s and early 2000s was also close to being exhausted.
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