Palladium Prices Hit Record Despite Chinese Auto Disruption
February 18 2020 - 12:04PM
Dow Jones News
By Joe Wallace
Palladium prices soared Tuesday despite shutdowns and delays at
car plants in China, the world's biggest consumer of the precious
metal, highlighting an extended spell of volatility in the
commodity's market.
The price of the metal -- which is in high demand from auto
makers seeking to meet tighter emissions standards -- jumped 5.4%
in the New York futures market, hitting a record of $2,442.20 a
troy ounce. The continued rise took traders and analysts by
surprise as it extended the advance in 2020 to 27.8%.
China's automotive market has been disrupted this year by the
outbreak of the new coronavirus as factories were forced to halt
operations to help curtail the contagion. Germany's Volkswagen AG
has postponed resuming production at some of its Chinese plants
until next week as the quarantine of nearly 60 million people
constrains the transportation of both parts and workers.
Palladium's price, meanwhile, has rallied as its supply has been
strained by years of stalled production by miners.
"It's the most dysfunctional market I've ever seen in my life,"
said Michael Widmer, an analyst at Bank of America. If palladium
keeps growing more expensive, it will force car manufacturers to
electrify their vehicle fleets faster than previously planned, he
added.
Upheaval in China, the world's second-largest economy, following
the coronavirus outbreak has weighed on the price of many raw
materials, including oil and industrial metals. Brent-crude futures
fell 2.3% on Tuesday, while copper slipped 1% on the London Metal
Exchange.
Demand for palladium surged in recent years as officials in the
European Union and China imposed stricter restrictions on emissions
from cars, amid worries about the impact of certain pollutants on
public health. When applied to catalytic converters that are fitted
to gasoline-driven cars, the metal is highly effective at
converting toxic gases such as carbon monoxide into substances that
are less toxic to inhale.
Almost all gasoline cars manufactured in China this year will
meet updated emissions standards, up from two-thirds in 2019,
according to a recent report by the U.K.'s Johnson Matthey. The
British chemicals maker said this will raise the average amount of
palladium that car makers use in each catalyst, and could push the
global demand for the metal in the auto industry above 10 million
ounces.
Supply hasn't kept up pace with consumption because palladium is
typically produced as a byproduct of platinum, and miners are wary
of flooding the weaker platinum market with excess material.
Prices have spiked as a result, providing a windfall for the
handful of South African and Russian miners that dominate
production of palladium and its sister metals. The rally is hurting
auto makers already grappling with a downturn in the global car
market and the cost of designing and producing new fleets of
electric vehicles.
Global demand for palladium will exceed production by 1.9
million ounces in 2020, Anglo American Platinum Ltd. forecast in
its annual report on Monday. The company said the rising price of
palladium contributed to a 33% rise in net sales revenue in
2019.
However, outgoing Chief Executive Chris Griffith said there were
signs that demand was now starting to weaken in response to high
prices. He predicted that auto makers may start to use more
platinum -- almost $1,500 an ounce cheaper -- instead of palladium
in their catalytic converters.
(END) Dow Jones Newswires
February 18, 2020 11:49 ET (16:49 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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