Palladium’s price is on the rise these days, with experts believing that the trend will continue this year on the back of increased vehicle sales worldwide.
Palladium surged in the first week of March on the back of rising auto sales in the United States and projections of low borrowing costs this year.
The auto industry has traditionally been a vital contributor to the surge in palladium demand and prices. The precious metal is used in catalytic converters for gasoline powered vehicles. On the average, around 4.5 grams of the precious metal is used for a catalytic converter. Gasoline-powered vehicles are mostly bought and used in the largest vehicle markets in the planet—China and the United States.
According to Johnson Matthey, the vehicle manufacturing industry accounted for nearly 70 percent of palladium demand worldwide.
With Europe switching from diesel to gasoline-powered vehicles, palladium is foreseen to become even more in demand. This is foreseen to increase the price of the precious metal, which has been on a slump because of oversupply.
In fact, the Volkswagen emission scandal is largely credited for sending palladium to a two-month high with the precious metal’s price pegged at $650 for an ounce. The German automaker was found to have equipped 11 million of its cars with a software that can fool emission tests. This is expected to put more pressure on the diesel sector, with diesel vehicle sales in Europe projected to drop even further. Luckily for VW, their gas vehicles perform much better than their diesel ones anyways.
Experts agree that the strong showing of palladium will continue this year.
Strong US Sales
Last year, the US vehicle industry continued its dominant run with sales reaching record-highs.
Strong December sales by the biggest vehicle makers in the United States pushed the yearly tally above the 17.4 million record set in 2000. The auto industry in the US posted sales of 17.47 million light vehicle sales last year, representing 5.7 percent increase over 2014 as reported by the Automotive News Data Center. The strong December showing of 8.9 percent increase was also one of the strongest in 2015.
The robust vehicle sales in the United States were brought about by cheaper gas prices, strong job growth, lower financing, and pent-up demand due to years of low sales.
China Vehicle Sales
It’s the same story in China, where car sales in 2015 reached an all-time high. Vehicle makers there sold more than 21 million passenger cars, an increase of 7.3 percent from the previous year. The growth also represented a 10 percent increase in 2014, and a 16 percent improvement from sales in 2013.
The same group predicts that 22.7 million vehicles or more will be sold this year, or a 7.8 increase from 2015. This would be due to increased government incentives for small cars or those that are appropriate for city driving. Industry stats show that 7 out of 10 new cars sold are small cars.
The robust sales of new cars in the United States and China are also boosting demand for junked vehicles.
Many of the old cars in the US, China, and major economies are finding their way to less developed countries, marketed as used cars. Some of these used cars are even refurbished and freighted for export in other countries.
Recyclers use old cars to recover few grams of palladium that are inside old catalytic converters.
A recycler of platinum-group metals in Pennsylvania, A-1 Specialized Services and Supplies, estimates that two million ounces of palladium will come from old cars this year.
London-based Johnson Matthey predicts that recycled palladium worldwide will jump to 2.86 million with used material coming from electronics and jewelry.
The metal recycling industry is expected to further grow in the next five years, with a new market report by Transparency Market Research estimating it to be worth $34.32 billion by 2022.
Growth in the region is expected to be buoyed by more stringent government regulations, as well as the huge profits generated from recovery of precious metals in electronic scrap.
Another source of palladium is South Africa, the second-largest producer after Russia. A five-month strike there ended last year, which cut down output significantly.
The largest palladium producer in North America, Stillwater Mining Company, says demand is still exceeding supply despite recycling of the metal. Its CEO, Michael McMullen, was quoted as saying that with demand exceeding supply, prices of palladium should go up.
Market observers say investors should buy palladium and sell platinum, a metal that is often used as a substitute for platinum in catalytic converters.
Palladium’s stock is expected to further grow in 2016 buoyed by increased demand for cars in the United States and China. The expected shift of European motorists to gas-powered vehicles will also come to play, as well as the increased demand for junked vehicles.