Palladium Prices in 2011 to Jump on Car Sales, Russia, Trader Ikemizu Says

Palladium may extend a rally this year as surging car sales in China boost demand, while supply from top exporter Russia drops as stockpiles fall, according to the head of commodity trading in Japan at Standard Bank Plc.

The metal, used in pollution-control devices, may reach $1,000 an ounce for the first time since 2001, when the price jumped to an all-time high of $1,125, said Bruce Ikemizu, who’s traded commodities for more than 24 years. Palladium, also used for electronic components and jewelry, traded at $806 today.

Precious metals have advanced as the European Union bailed out Greece and Ireland, prompting investors to seek a haven against weaker currencies and financial turmoil. Last year gold rallied 30 percent, silver 83 percent, platinum 21 percent and palladium almost doubled as the Federal Reserve kept borrowing costs low and bought bonds to boost growth.

“Car sales expansion will boost palladium as the industry is the biggest consumer,” Ikemizu said in a Jan. 12 interview in Tokyo. “Supply may become unstable as stockpiles of the metal held by the Russian government may have almost depleted.”

Immediate-delivery palladium touched $823.95 an ounce yesterday, the highest level since March 2001. The metal, which has quadrupled in the past two years, advanced as the global economy recovered from recession, boosting industrial demand.

Bullish Calls

Ikemizu’s bullish forecast echoes calls from Credit Suisse Group AG and Deutsche Bank AG. Palladium may rise to $1,200 an ounce in 2013, Credit Suisse Group AG said in a Jan. 12 report, citing increased demand. The price may reach $1,000 an ounce by the fourth quarter of this year and $1,450 by the end of 2012, Deutsche Bank said in a Jan. 11 outlook.

The metal will extend its rally as a recovery in U.S. vehicle sales adds to continued expansions in emerging markets, boosting demand amid the uncertainty about Russian shipments, Ikemizu said. The metal is used mainly to clean exhausts from gasoline-powered vehicles.

China’s vehicle sales will grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, the China Association of Automobile Manufacturers forecast. The country is the world’s biggest auto market.

“Palladium may drop to around $750 if the U.S. government takes steps to promote sales of electric vehicles, which do not emit exhaust gases and don’t require palladium-based catalysts,” said Kazuhiko Saito, analyst at broker Fujitomi Co.

Ford Motor Co., the second-largest U.S. carmaker, introduced its first electric car this month, following rival products from Nissan Motor Co. and General Motors Co. last year.

Russian Stockpiles

Russian supply increased 2.1 percent to 3.71 million ounces last year, representing 52 percent of global supply, according to a November report from Johnson Matthey Plc, a London-based refiner. Of Russia’s total, 1.01 million ounces was drawn from stockpiles, the company estimated.

OAO GMK Norilsk Nickel, the world’s biggest palladium producer, said last month it expects Russia’s state repository Gokhran to sell “insignificant” amounts in 2011 before exiting from the global market in 2012. The company may also supply the metal to exchange-traded funds, it said.

“Russia is said to be completing palladium sales from the state reserves,” Ikemizu said. “There are concerns about supply” as the nation’s shipments may become as small as its production level, he said.

Palladium soared to a record in January 2001 as disruption to Russian shipments spurred speculators on the Tokyo Commodity Exchange to buy back contracts. The bourse was the largest for palladium futures at the time. The most-active contract jumped to an all-time high of 3,710 yen a gram on Jan. 29, 2001. It traded at 2,162 yen today.

South Africa

Palladium supply exceeded demand by 45,000 ounces last year, the smallest amount since a shortage in 2000, according to the Johnson Matthey report. Sales from Russian state stockpiles were the third-biggest contributor to world supply after mine output from Russia and South Africa, it said.

Sales growth for conventional, fuel-powered vehicles may also boost platinum to as high as $2,000 an ounce this year, Ikemizu said. The price, which was at $1,822.10 an ounce today, gained to $1,829.50 yesterday, the highest level since July 2008.

Platinum is unlikely to drop to less than $1,600 an ounce given the costs to produce the metal in South Africa, the world’s biggest supplier, Ikemizu said. The metal is mainly used for catalysts in diesel vehicles, which are popular in Europe.

“Palladium will benefit more from car-sales growth as it is more affordable than platinum,” said Saito at Fujitomi. “Platinum isn’t used much as an auto catalyst in China, where demand for jewelry fabrication is strong.”

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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