Palladium Forecast: Price hits the new records as supply deficit
Updated
Palladium prices ended the week at 1176 $ / Ons – Spot Rate – hitting the records high. Along with Rhodium, Palladium is the shining star of the precious metal sector. Both precious metals flew high due to a growing imbalance in their supply and demand fundamentals.
Demand for physical palladium is one of the important factors to consider especially because there is a global supply deficit since 2012. Palladium has significant industrial uses with most of the demand coming from the auto sector. It is the critical component in catalytic converters, which reduce harmful emissions in gasoline engines.
Supply Side: The car demand is solid across the world, and trends are toward big SUVs in the U.S. and small gasoline engines in Asia. All of these are growing palladium demand. The optimism that the U.S. and China could reach a trade deal in the near future is adding to the momentum in an already bullish environment.
Demand Side:The mining supply for 2018 is expected to be flat as a decrease in South Africa and Russia may be offset by a gain in output from Canada according to Metals Focus data.
The supply fundamentals continue to favor Palladium prices, especially if Chinese growth begins to pick-up. Although, there is a risk that palladium prices fall in the near-term as sentiment on the global economy sours the market players see any selloff as a short-term move.
Even if the global economy weakens, we need to see a major slowdown in global growth to impact prices.
Speciality chemicals company Johnson Matthey calculated that physical demand for palladium exceeded supply in recent years:
Demand exceeded supply in 2016 by 89,000.
Demand exceeded supply in 2017 by 801,000 ounces.
For 2018 the forecast to have another shortfall of 239,000 ounces.
Summary: Supply deficit will continue.
Physical industrial demand for palladium may have shown structural deficits but the price did not react accordingly. Why? The answer is in massive ETF outflows of physical palladium. ( See Bloomberg’s Article Sep 28th : )
” Prices are rallying sharply, likely because of a squeeze in the market and tight supply and demand for the metal but HEDGE FOUNDS ARE LARGELY UNINTERESTED ”
Does it mean that the palladium ETF outflow was meant to close the gap of the supply deficit in the car industry? Focusing on the physical demand / supply imbalance, it seems that in 2019 the ETF outflow will have reached its limit, and the physical shortage will have no easy to fill the gap.
The New GOLD ? Meanwhile, Palladium prices are gaining on Gold. It is possible for palladium to trade higher than gold if palladium supply continues to be muted, demand for autos and electronics increases, and tighter emission legislation further takes hold in China and the U.S
If we look at the matter technically: All times high 1125 has been broken. This can be the beginning of a new big bullish move.
This week we will focus on 1125 support. If the prices hold above 1125, the first level to break would be 1187 $. And breakout of 1187 $ would lead the prices 1202 $ and 1218 $.
Our midterm price prediction is 1250 $ and 1350 $ ( By the second half of 2019 ).
Note: On the smaller chart timeframes – H4 Chart – we see a bearish butterfly pattern indicating a minor correction. Potential pullbacks towards 1125 and 1061 should be used as buying opportunities.
Demand for physical palladium is one of the important factors to consider especially because there is a global supply deficit since 2012. Palladium has significant industrial uses with most of the demand coming from the auto sector. It is the critical component in catalytic converters, which reduce harmful emissions in gasoline engines.
Supply Side: The car demand is solid across the world, and trends are toward big SUVs in the U.S. and small gasoline engines in Asia. All of these are growing palladium demand. The optimism that the U.S. and China could reach a trade deal in the near future is adding to the momentum in an already bullish environment.
Demand Side:The mining supply for 2018 is expected to be flat as a decrease in South Africa and Russia may be offset by a gain in output from Canada according to Metals Focus data.
The supply fundamentals continue to favor Palladium prices, especially if Chinese growth begins to pick-up. Although, there is a risk that palladium prices fall in the near-term as sentiment on the global economy sours the market players see any selloff as a short-term move.
Even if the global economy weakens, we need to see a major slowdown in global growth to impact prices.
Speciality chemicals company Johnson Matthey calculated that physical demand for palladium exceeded supply in recent years:
Demand exceeded supply in 2016 by 89,000.
Demand exceeded supply in 2017 by 801,000 ounces.
For 2018 the forecast to have another shortfall of 239,000 ounces.
Summary: Supply deficit will continue.
Physical industrial demand for palladium may have shown structural deficits but the price did not react accordingly. Why? The answer is in massive ETF outflows of physical palladium. ( See Bloomberg’s Article Sep 28th : )
” Prices are rallying sharply, likely because of a squeeze in the market and tight supply and demand for the metal but HEDGE FOUNDS ARE LARGELY UNINTERESTED ”
Does it mean that the palladium ETF outflow was meant to close the gap of the supply deficit in the car industry? Focusing on the physical demand / supply imbalance, it seems that in 2019 the ETF outflow will have reached its limit, and the physical shortage will have no easy to fill the gap.
The New GOLD ? Meanwhile, Palladium prices are gaining on Gold. It is possible for palladium to trade higher than gold if palladium supply continues to be muted, demand for autos and electronics increases, and tighter emission legislation further takes hold in China and the U.S
If we look at the matter technically: All times high 1125 has been broken. This can be the beginning of a new big bullish move.
This week we will focus on 1125 support. If the prices hold above 1125, the first level to break would be 1187 $. And breakout of 1187 $ would lead the prices 1202 $ and 1218 $.
Our midterm price prediction is 1250 $ and 1350 $ ( By the second half of 2019 ).
Note: On the smaller chart timeframes – H4 Chart – we see a bearish butterfly pattern indicating a minor correction. Potential pullbacks towards 1125 and 1061 should be used as buying opportunities.
Note
Palladium Prices pulled back and headed North as predicted. We have reached our sub targets at 1202 and 1218. We keep our positions targeting 1250 USD.Note
Prices reached our first target at 1250. I will update the forecast. Pullbacks are buying opportunities.
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