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One more rally before electric vehicles sideline palladium

Commodities Dec 23, 2021 08:01AM ET
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© Reuters. FILE PHOTO: Ingots of 99.97 percent pure palladium are stored at a plant owned by Krastsvetmet, one of the world's biggest manufacturers of non-ferrous metals, in Krasnoyarsk, Russia April 9, 2019. REUTERS/Ilya Naymushin

(This December 21 story corrects dates and timeline in paragraph 12)

By Peter Hobson

LONDON (Reuters) - Palladium is set for one last rally next year as a revival in the auto sector boosts demand for the metal used in engine exhausts, before the rise of electric vehicles that don't use the metal sends prices into long-term decline.

Automakers embed palladium in exhaust pipes to neutralise harmful emissions, and for years expanding auto sales and tightening emissions rules led to booming demand and shortages.

Palladium rose from below $500 an ounce in 2016 to an all-time peak of $3,017.18 in May -- a gain of more than 500%.

But prices have tumbled to around $1,800 after a semiconductor chip shortage forced auto makers to cut output, pushing the roughly 10-million-ounce a year market to its first annual surplus in a decade, according to consultants Metals Focus.

"At these levels, we're bullish," said Macquarie analyst Marcus Garvey.

Garvey said auto output could surge 15% in 2022 as the chip shortage eases, pushing the palladium market to a roughly 500,000-ounce deficit and prices back towards $2,500 or even higher.

(Graphic: Palladium rollercoaster, https://fingfx.thomsonreuters.com/gfx/ce/lgpdwozdbvo/PGM%20YEAR%20ENDER%20PRICES.JPG)

When it comes, the rally could be rapid, said Citi analyst Max Layton, as speculators rush to abandon their biggest net short position on the Nymex exchange since at least 1995, equivalent to almost 400,000 ounces of palladium.

(Graphic: Speculators turn bearish on palladium, https://fingfx.thomsonreuters.com/gfx/ce/lgvdwozgypo/PGM%20YEAR%20ENDER%20POSITIONING%202.JPG)

But things soon turn bearish.

"Whatever price you see over the next 12-24 months, we will have seen the high of the cycle," Layton said. "Palladium is the antithesis of battery materials. It likely has sequential demand declines from 2024 as far as the eye can see."

The auto industry currently consumes around 85% of the world's palladium supply.

Falling production of combustion engines and recycling of old vehicles mean that by 2040 – probably earlier – autos will give more palladium back to the market than they take from it, said StoneX analyst Rhona O'Connell.

(Graphic: Palladium oversupply looms, https://fingfx.thomsonreuters.com/gfx/ce/akvezowyrpr/PGM%20YEAR%20ENDER%20BALANCES.JPG)

Six percent of vehicles produced in 2021 will be purely battery powered, rising to 16% over the next five years, said Wilma Swarts at Metals Focus, who predicts palladium prices will ease slowly rather than collapse.

Also eroding demand is rising substitution by auto makers of palladium for platinum, which can clean emissions and, at around $950 an ounce, is cheaper.

This substitution means auto makers will use 200,000 ounces less palladium this year and 400,000 ounces less in 2022, Swarts said.

One more rally before electric vehicles sideline palladium
 

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Comments (1)
Tyrone Jackson
Tyrone Jackson Dec 23, 2021 8:22AM ET
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Electric cars only make sense for the metro city dwellers. Out in the open country the usages are limited. Go read up on battery life and the cost to replace them. 4000k to replace battery in a Prius. Half of the Prius owners driving around on a 3 cylinder engine because they cannot afford the new batteries. 7000 k or more for a Tesla. Does not make economical sense. For a teacher that lives 10 - 20 miles from work- yes For a construction worker that lives 60 miles from the job and carrying all the tools and supplies.- A diesel truck is much more economical. And in natural disasters and sitting in traffic with the AC on Your EV is not your friend
Andrew Ulferts
Andrew Ulferts Dec 23, 2021 8:22AM ET
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And that’s IF we decide we even want to buy them. It will always be OUR choice, not our government’s. The brainwash attempt of “climate change” is not working.
Scott Mears
Tundrascott Dec 23, 2021 8:22AM ET
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not true. Carbon pricing and outright bans of internal combustion will quickly change the economicsAlso, you'll be dead or not driving much in 25-30 years and your kids won't be buying these polluters. Won't want to and won't even have the option. I drive a V8 pickup truck, BTW so this includes me too.
Robert Brouillet
Robert Brouillet Dec 23, 2021 8:22AM ET
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If you follower the personal computers since about 1980 you will find that users have been shoe-horned into Microsoft. Many much better operating system and office software have fallen by the way. Crony capitalism could care less about what's considered best by the user. Think also of the usefulness of an 8 foot bed for a pick-up truck.
 
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