Demand for palladium, last quarter’s best-performing precious metal, is exceeding supply for a second consecutive year as mine production stagnates while sales by automakers, the biggest buyers, reach record highs.
Consumption will beat production by 511,000 ounces in 2013, or about what the car industry uses every seven weeks, Barclays Plc estimates. Morgan Stanley expects deficits to persist until at least 2017 and predicts a record annual price average in 2014. Palladium will average at least $770 an ounce in the fourth quarter, or 15% more than now, according to the three most-accurate forecasters tracked by Bloomberg Rankings over the past two years.
The commodity is one of three supply shortages left among the 10 base and precious metals tracked by Barclays, along with tin and platinum. Palladium is still 40% below the record $1,125 reached in 2001. The slump spurred a 45% surge in buying by carmakers in the past five years and Morgan Stanley expects record autocatalyst demand in the next five. Hedge funds are now the most bullish on prices in at least three years.
“Palladium looks very good,” said John Stephenson, who helps manage about C$2.7 billion ($2.74 billion) of assets at First Asset Investment Management Inc. in Toronto. “Investor demand is pretty strong for palladium. It also has its auto-demand kicker.”
The 10% gain in palladium the past quarter compared with retreats for platinum, silver, gold and the LMEX gauge of base metals from aluminum to zinc. The Standard & Poor’s GSCI gauge of 24 raw materials declined 2.9% and the MSCI All-Country World Index gained 2.5%. Treasuries lost less than 0.1%, a Bank of America Corp. index shows.
Global car sales exceeded 80 million for the first time ever in 2012 and will advance 2.4% to 82.7 million this year, says LMC Automotive Ltd., a research company in Oxford, England. Americans will buy more for a fourth year, matching the longest run of gains since the 1940s. An average autocatalyst contains about 4 grams (0.13 troy ounce) of palladium, platinum or rhodium, according to London-based Johnson Matthey Plc.
Supply from mines and stockpiles will rise 0.3% this year after contracting almost 11% in 2012, according to Barclays. Pay protests spread across South African mines after starting in the platinum pits in August. The issues that sparked the disputes persist and more disruptions are likely this year, Tim Murray, a general manager for Johnson Matthey, told a conference in New York in November.