Hedge funds returning to palladium as ETPs retreat

Pros, retail traders diverge...

Norilsk Nickel

About 150,000 to 200,000 ounces of palladium production may be lost this year because of unrest in South Africa, as well as 300,000 to 400,000 ounces of platinum, said Anton Berlin, deputy chief executive officer of the sales unit of OAO GMK Norilsk Nickel. The Moscow-based company is the world’s biggest palladium producer.

Sales from Russian state stockpiles, which reached 1 million ounces as recently as 2010, will decline to 150,000 ounces next year, Barclays estimates. The reserves, a state secret, are probably almost depleted, according to London-based Johnson Matthey Plc, the maker of one in three autocatalysts.

Palladium is trading 47 percent below its 2001 record of $1,125 and 61 percent below the price of platinum. That’s spurring carmakers to use more in autocatalysts, canisters that have honeycomb-like surfaces converting emissions into less harmful substances. Palladium accounted for about 30 percent of the metal in catalytic converters for diesel vehicles last year, from 20 percent in 2009, Johnson Matthey estimates.

Rhodium Market

Rhodium, another precious metal used in autocatalysts, fell 20 percent this year to $1,125 an ounce, Johnson Matthey data show. The rhodium market is about 10 percent of the size of palladium, based on demand. Deutsche Bank AG introduced ETPs backed by rhodium in May 2011 and they now hold 46,900 ounces valued at about $50 million, according to data from the Frankfurt-based bank.

Carmakers will use a record 6.54 million ounces of palladium next year, Barclays estimates. Demand from other industrial applications including dental, electrical and glass manufacturing will rise 3.7 percent to 2.64 million ounces, the bank predicts.

Shares of Norilsk Nickel fell 3.5 percent this year and will gain 24 percent to 5,936 rubles ($189) in the next 12 months, according to the average of 10 analyst forecasts compiled by Bloomberg. The company will report a 7.9 percent gain in profit to $3.24 billion in 2013, the mean of five estimates shows.

“If you are a little bit more long-term orientated and not just focused on the next two or three months, then it is a good buying opportunity,” said Daniel Briesemann, a commodities analyst at Commerzbank AG in Frankfurt. “Lower supply from Russia and recovering demand from the auto industry in at least Asia and America should be the main driving factors behind rising prices.”

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