Sales from Russian government stockpiles will drop to 200,000 ounces this year, from 1 million ounces as recently as 2010, according to Barclays. The reserves, a state secret, are probably close to being depleted, Johnson Matthey estimates.
Hedge funds and other large speculators almost tripled wagers on higher prices since the start of November, U.S. Commodity Futures Trading Commission data show. The palladium futures market is valued at about $2 billion, New York Mercantile Exchange data show. The funds have never been more bullish in the data going back to December 2009.
That contrasts with seven consecutive monthly declines in metal held through exchange-traded products, data compiled by Bloomberg show. Holdings stand at 57.6 metric tons valued at $1.27 billion, still 12% more than a year ago. Investment demand probably will total 100,000 ounces (3.1 tons) this year, down from 430,000 ounces in 2012, Barclays estimates.
Some investors are concerned that global economic growth will slow after Japan and the 17-nation euro area tumbled back into recessions and U.S. policy makers failed to resolve all the budget issues after settling a dispute over $600 billion of automatic tax rises and spending cuts this month. China, the biggest car market, is only now quickening again after slowing for seven quarters.
The anticipated surge in prices poses a risk because it threatens to crimp demand. Carmakers cut consumption 48% between 1999 and 2002 as palladium reached a record because of disruptions to Russian exports. The amount they used in 1999 wasn’t reached again until 2011, Johnson Matthey data show.
Carmakers also may be more reluctant to commit to future demand as prices climb. Ford Motor Co., the second-largest U.S. automaker, used futures and options to lock in palladium costs during the surge to the record in January 2001. That culminated in a $1 billion loss for the Dearborn, Michigan-based company as prices tumbled as much 72% in the following 11 months.