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LAWRIE WILLIAMS: Palladium hammered as car sales continue to fall

One of the signs of an imminent, or perhaps already existing, recession is the ongoing level of car sales and these have been heading downwards steeply in virtually all major markets .  Contrary to this trend the palladium price had been heading ever higher – some suggested into bubble territory.  But at last the penny seems to have dropped and the palladium bubble, if there was one, may well have burst with a phenomenal drop in price over the past couple of days.  True, other precious metals have not been immune to the drop in prices and are mostly sharply down as well, but the fall in the palladium price has been nothing short of dramatic.

As recently as Wednesday palladium was riding high at comfortably above $1,500 an ounce.  By yesterday’s North American close it had come off a massive $200 an ounce and even drifted lower in overnight trading before making a relatively small recovery this morning in the European markets.  But we suspect this recovery will be shortlived as the metal’s price vulnerability sinks in.  Indeed were it not for the gold price slipping back too in the face of a sharp rise in the dollar index, gold and platinum might have got close to parity again!  We suspect that this might actually become the case over the next few weeks with gold likely to trend stronger, while palladium could well have further to fall.

U.S. car sales, having been down for the past several months, are widely expected to fall again this month.  European sales have been down now for five months in a row with Brexit uncertainty not helpful, although ironically UK car sales actually saw a small pick-up in February.  China, nowadays the world’s largest light vehicle market, has also seen new car registrations fall sharply for the past eight months.

Palladium’s price strength has largely been due to a perceived tight supply situation with demand having exceeded supply for the past couple of years.  Its principal market has been as a petrol (gasoline) driven internal combustion engine exhaust emission control catalyst so a global downturn in petrol engine driven vehicles has to be significant in a market which has seen the palladium price rise by around eight times over the past 10 years!.

It is also worth pointing out that the car sales statistics do not show the true sales downturn for internal combustion engine driven vehicles  as they include sales of electric powered cars (EVs) too, which are rising – particularly in China where EVs account for around 6% of the market – and rising.  True some of these vehicles are hybrids which also require internal combustion engines to back up the electrical range, but in general these petrol driven engines are smaller and less ;powerful and require smaller palladium loads in their exhaust emission control systems.  To an extent this is offset by tighter emission controls on new vehicles, but the overall trend for EV sales is distinctly upwards which will further eat into demand for palladium-dominant exhaust control catalysts

In short, we don’t see palladium demand as a consistently rising market.  Indeed we see it declining as what is probably a global recession bites leading to an overall downturn in car sales.  This will also see a  likely additional downturn in palladium demand enhanced by continued growth in EV sales taking an ever-advancing proportion of new light vehicle sales.

29 Mar 2019 | Categories: Palladium

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