Investors are buying palladium at the fastest pace in more than a year as analysts predict rising demand and declining supply will turn this quarter’s worst-performing precious metal into the best by December.
Holdings in palladium-backed exchange-traded products rose 14 percent this year, poised for the best quarter since the end of 2010, data compiled by Bloomberg show. The metal will average $850 an ounce in the final three months of 2012, 32 percent more than now, according to the median estimate of 11 analysts surveyed by Bloomberg. They expect a gain of 15 percent for gold, 13 percent for silver and 11 percent for platinum.
Palladium lagged behind other metals this year on concern about slowing growth in vehicle sales in China, the world’s largest car market. Autocatalysts account for 65 percent of demand, according to Barclays Capital. Prices are poised to rise because carmakers are still using the most metal ever, with the prospect of shortages because of less supply from state reserves in Russia, the biggest producer, the bank estimates.
“I like palladium the best among precious metals, it’s relatively cheap compared to the others,” said Bart Melek, the head of commodity strategy at TD Securities Inc. in Toronto and the most accurate price forecaster tracked by Bloomberg Rankings in the eight quarters through the end of 2011. “Autocatalyst demand for palladium should grow. Russian government stocks will limit supply growth.”
Palladium fell 1.8 percent to $643.75 in London this year, beaten by all other precious metals for the first time since the third quarter. Gold rose 5.7 percent, silver 15 percent and platinum 16 percent. The Standard & Poor’s GSCI gauge of 24 commodities added 6.4 percent and the MSCI All-Country World Index of equities appreciated 10 percent. Treasuries lost 1.2 percent, a Bank of America Corp. index shows.
The increase in palladium ETP holdings means investors now hold 58.9 metric tons, equal to more than eight months of Russian mine output and valued at about $1.2 billion, data compiled by Bloomberg show. Gold held through ETPs rose 1.4 percent to 2,389.8 tons as platinum increased 8.5 percent to 43.5 tons and silver added 2.5 percent to 17,719 tons.
Sales from Russian reserves, created during a glut in the 1970s and 1980s, will probably drop by 60 percent to 300,000 ounces this year, Barclays estimates. Supply from those stockpiles, a state secret, won’t exceed 4.5 tons (144,678 ounces) this year or next and may end in 2014, Interfax reported in October, citing an unidentified Finance Ministry official linked to Gokhran, the state-run body managing the inventory.
Declining Russian sales will combine with the smallest South African output in three years. Supply from mines and stockpiles will drop 6.9 percent to 6.91 million ounces this year, Barclays estimates. An 11 percent expansion in scrap metal to 2.43 million ounces still won’t be enough to meet demand, leaving a 215,000-ounce shortage, the bank predicts.
Sales of cars and light commercial vehicles will rise 5.3 percent to a record 79.3 million units this year, according to LMC Automotive Ltd., a research company in Oxford, England. Carmakers will use 6.24 million ounces of palladium in catalytic converters, 5.5 percent more than in 2011, Barclays estimates.
Actual consumption may be lower after an official of the China Association of Automobile Manufacturers said March 20 that volume growth would probably miss its original 2012 target of 8 percent. Car sales had their slowest start to a year since 2005 in January and February, association data show. Premier Wen Jiabao cut the country’s annual growth target for gross domestic product to 7.5 percent this month, the least since 2004.
“We think people should be leaning toward monetary assets rather than industrial,” said James Dailey, who manages $215 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “If you want to be invested in a metal choose gold. You don’t want to mess with industrial metals right now.”
At least 59 percent of platinum and palladium is used in industrial applications from electronics to autocatalysts that convert emissions into less harmful substances, Johnson Matthey Plc estimates. Fifty-three percent of silver goes into products such as solar panels and batteries, according to The Silver Institute, a Washington-based industry group. About 11 percent of gold is used in industry, World Gold Council data show.
Shares of OAO GMK Norilsk Nickel, the world’s biggest palladium producer, rose 8.2 percent this year. The Moscow-based company will report a 4.2 percent decline in net income to $4.49 billion in 2012, according to the average of 12 analyst estimates compiled by Bloomberg.
Rhodium, a platinum-group metal also used in autocatalysts, was unchanged at $1,400 an ounce this year, according to London-based Johnson Matthey, which has made about one in three of the world’s catalytic converters. Ruthenium climbed 9.1 percent to $120 an ounce and iridium was unchanged at $1,085 an ounce. Both are also so-called PGMs.
Platinum is set for its best quarter in three years after workers at Impala Platinum Ltd.’s Rustenburg mine, the world’s biggest, started a month-long strike in January. It will average $1,800 an ounce in the fourth quarter, the analysts surveyed by Bloomberg predict. The supply surplus will narrow to 37,000 ounces this year, from 364,000 ounces, according to Barclays.
Platinum now costs more than 2.5 times as much as palladium, compared with a five-year ratio of 3.6, data compiled by Bloomberg show.
Silver is headed for its best quarter in a year, and will average $36 an ounce in the final three months, the forecasts compiled by Bloomberg show. Holdings fell by more than 800 tons in 2011, according to data compiled by Bloomberg. Investors may buy 2,000 tons through ETPs this year, Morgan Stanley predicts.
Gold is advancing for a 12th consecutive year and will average $1,900 an ounce in the fourth quarter, the analysts predict. Prices slid more than 7 percent in the past month as signs that U.S. growth is accelerating pared investors’ expectations the Federal Reserve will buy more debt. The central bank bought $2.3 trillion of debt in two rounds of quantitative easing that ended in June 2011, during which gold appreciated about 70 percent.
Fed Chairman Ben S. Bernanke said March 26 that while he’s encouraged by the decline in the unemployment rate, continued accommodative monetary policy will be needed. Gold jumped 1.7 percent. The central bank has pledged to keep interest rates near zero through late 2014. Precious metals generally earn returns only through price gains, diminishing their allure as interest rates rise.
U.S. consumer prices increased 2.9 percent in the 12 months ended in February, the Labor Department reported March 16. While that’s down from as much as 5.6 percent in 2008, it’s still 2.65 percentage points more than the Fed’s target rate for overnight loans between banks of zero to 0.25 percent.
“Negative real interest rates are very much a proven historic driver for the precious metals sector and we can’t see any sign of that changing any time soon,” said Charles Morris, who oversees about $2.5 billion at HSBC Global Asset Management in London. “All the factors are lined up for precious metals to have a run. The big picture is that there’s a ton of money out there and conditions are very loose around the world.”