At a time when gold (COMEX:GCU13) and silver (COMEX:SIU13) are tumbling the most in three decades, hedge funds are holding a near-record bullish bet on palladium (NYMEX:PAU13) as forecasters from Morgan Stanley to Credit Suisse Group AG predict years of shortages.
Demand will exceed output by 1.33 million ounces in 2013, more than North America produces in a year, Morgan Stanley says. Credit Suisse anticipates deficits through at least 2016, and researcher CPM Group says mines won’t catch up for a decade. Prices will average $800 an ounce in the first quarter, 11% more than now, and $850 in 2015, the median of as many as 12 analyst estimates compiled by Bloomberg show.
Speculators raised bets on higher prices eightfold in the past year and are holding a near-record amount in funds. That contrasts with a $60.6 billion slump in gold holdings this year and a $6.3 billion drop in silver as some investors lost faith in the metals as a store of value. They’re bullish on palladium because 67% of supply is used in autocatalysts, and IHS Inc. predicts record global car sales.
“The supply situation is potentially very bullish for palladium, so I am probably the most bullish on palladium amongst all commodities,” said John Stephenson, who helps oversee about C$2.7 billion ($2.6 billion) at First Asset Investment Management Inc. in Toronto. “Any time supply and demand are out of whack, we see prices swing.”
Palladium rose 2.7% to $722.95 in London this year, as gold declined 23% and silver 35%. Platinum, rhodium, iridium and ruthenium, typically found in the same ores as palladium, also retreated. The Standard & Poor’s GSCI Spot Index of 24 commodities lost 1.4%, and the MSCI All- Country World Index of equities gained 11%. The Bloomberg U.S. Treasury Bond index fell 2.8%.
Autocatalyst manufacturers will use 7.16 million ounces of palladium next year, 89% more than a decade earlier, Morgan Stanley estimates. The canisters have honeycomb surfaces coated with metals that convert emissions including nitrogen oxides, blamed for acid rain, into less harmful substances. Tougher environmental laws mean 90% of new passenger vehicles now have catalytic converters.
Mining companies including Anglo American Platinum Ltd. failed to keep pace with demand as strikes over pay disrupted pits across South Africa, the second-biggest producer. Total supply is contracting for the sixth time in nine years, Morgan Stanley says. Sales from Russian reserves, a state secret, will slump to 150,000 ounces in 2014, from as much as 1 million in 2010, according to Barclays Plc.