Palladium Only Precious Metal That Hasn’t Surprised in LBMA Poll

Best-performing precious metal palladium is holding up better than most analysts anticipated in the annual London Bullion Market Association survey while gold, silver and platinum have surprised every forecaster.

Palladium’s low of $646.95 an ounce so far this year is still higher than 17 of 20 forecasts made in the survey published by the LBMA in January. Prices are up 3.8 percent this year at $730.67 in London, reaching a nine-week high of $771.30 on June 10. The three other metals have already fallen below every participant’s low estimate in this year’s survey.

Gold and silver slid this year as some investors lost faith in a store of value on speculation that the Federal Reserve will taper bond buying because of an improving U.S. economy. Platinum, mostly used in autocatalysts, fell because of recession in Europe, the biggest user of the metal in vehicles. Palladium, also found in the pollution-control devices, fared better because of its higher usage in cars in China and the U.S.

“It just has stronger fundamentals than most of the other metals,” said Rohit Savant, an analyst at CPM Group Inc. in New York. “You have a lot of usage in the auto market, much more than platinum. The U.S. and China, which are among the larger users, are both seeing healthy growth in demand for cars.”

The most bearish forecast in the LBMA survey was for palladium to fall to $550 this year, with the average high estimate at $851. Prices may reach $850 this year, Savant said. The metal’s drop of as much as 8.1 percent compares with a slide of as much as 11 percent for platinum. Gold slipped as much as 21 percent and silver’s plunge extended to 33 percent as both metals entered bear markets in April.

Auto Demand

Autocatalysts are canisters with honeycomb-like surfaces that convert car emissions into less harmful substances. North America and China together account for about 46 percent of all palladium used in autocatalysts, compared with about 16 percent for platinum, according to Johnson Matthey Plc, which has made one in three of the devices. Europe accounts for 41 percent of platinum auto demand, compared with 22 percent for palladium.

U.S. automobile and light-duty truck sales rose to a seasonally adjusted annual rate of 15.3 million in May, up from 14 million a year earlier, Woodcliff Lake, New Jersey-based Autodata Corp data show. China’s wholesale deliveries of cars, multipurpose and sport utility vehicles rose 9 percent to 1.4 million units in May from a year earlier, China Association of Automobile Manufacturers data show. While the pace slowed since March, it’s up from less than 1 million units in February 2011.

ETP Holdings

Still, palladium’s peak so far this year of $786.50 exceeded only one participant’s high forecast in the LBMA poll. While investors boosted exchange-traded product holdings 18 percent this year to 69 metric tons, that’s still 5.6 percent below the February 2011 all-time high. Platinum assets jumped 36 percent this year to a near-record 61.9 tons. Silver holdings are little changed and metal held in gold products slid 20 percent.

The World Bank cut its global growth forecast to 2.2 percent on June 12, from January’s 2.4 percent estimate, after emerging markets slowed more than projected, while budget cuts and slumping investor confidence deepened Europe’s contraction. Palladium dropped as much as 6 percent since June 10.

Diminishing sales from Russian state stockpiles and mining disruptions in South Africa, the second-biggest producer, after Russia, will keep the metal in a shortage for the “foreseeable future,” Robin Bhar, an analyst at Societe Generale SA in London, wrote in a June 12 report. Prices may reach $875 by year-end, he predicts.

Russian Inventories

Russian government stockpile sales will be about 100,000 ounces in 2013, the last year of “substantial shipments,” according to London-based Johnson Matthey. Sales from the reserves, a state secret, were an estimated 1 million ounces as recently as 2010. Palladium’s 2012 shortage of 1.07 million ounces was the most since 2000, it says. Demand will exceed supply by 810,000 ounces this year, Barclays Plc estimates.

“The absence of heavy Russian stockpile sales, positive demand from the auto industry, generally steady industrial demand and limited mine production growth sets the stage for higher prices,” James Steel, an analyst at HSBC Securities (USA) Inc. in New York, wrote in a June 14 report. “Recognition of tightening supply-demand balances will elicit a positive response from investors.”

-- Editors: Claudia Carpenter, John Deane

Before it's here, it's on the Bloomberg Terminal.