Strike curbs palladium supply

South Africa’s most costly mine strike ever compounded the longest global production shortfall in 14 years for palladium (NYMEX:PAN14), just as automakers are set to use record amounts of the precious metal.

Output of the commodity used mostly to cut auto emissions will trail demand by an all-time high of 1.6 million ounces in 2014, after the strike idled 60 percent of supplies from the world’s second-largest producer, according to auto-catalyst maker Johnson Matthey Plc. Prices that gained 17 percent since January and touched a 13-year high yesterday may jump another 15 percent by year-end to $950 an ounce in New York, a Bloomberg survey of 15 analysts showed.

Even after miners agreed today on a wage deal in a bid to end the walkout that began in January, Morgan Stanley says output deficits will last through at least 2018 as surging car sales from North America to China boost demand for catalytic converters. Barclays Plc predicts automakers will use a record 7.19 million ounces in 2014. Investors have boosted holdings in exchange-traded funds by 40 percent since March.

“The car manufacturers are demanding more, while the supply situation is worsening by the day,” Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors LLC, which manages $1.3 trillion, said May 23. “Even after workers return, output from Africa will be lower as mines have been damaged. Palladium will be one of the strong performers this year.”

Best performer

Futures have rallied 16 percent this year to $833 on the New York Mercantile Exchange, out-gaining all other metals except nickel. Prices yesterday touched $864.60, the highest since February 2001. The Standard & Poor’s GSCI gauge of 24 commodities rose 3.5 percent since the end of December, while the MSCI All-Country World Index of equities is up 4.3 percent. The Bloomberg U.S. Treasury Bond Index added 2.7 percent.

The world’s three largest platinum (NYSE:PPLT) companies and the biggest union at their South African mines agreed on a wage deal that the labor organization will take to its members in a bid to end a 20-week strike

Tougher environmental laws mean 90 percent of new vehicles have catalytic converters that are made mostly with palladium in gasoline-fueled engines, while a related metal, platinum, is used for diesel. Auto catalysts will accounted for 72 percent of world palladium use last year, Johnson Matthey estimated.

Global sales

Global sales of cars and light commercial vehicles will rise 5 percent this year to a record 88.4 million and expand 5.4 percent further in 2015, according to forecasts from LMC Automotive Ltd. Passenger-vehicle sales in China, the largest auto market, rose 14 percent last month, the most since February, China Association of Automobile Manufacturers said.

Rising use of palladium by carmakers means mine output and supplies of recycled metal will be less than demand for a third straight year, the longest supply deficit since 2000, forcing buyers to dig deeper into inventories, Johnson Matthey estimates. The 2014 shortfall will be more than twice as big as last year, data show.

Autos will use 7.223 million ounces this year, up 87 percent from 2005, while 1.967 million ounces will go to chemical, dental, electronics and jewelry industries, Morgan Stanley said. Demand for palladium in vehicles has surged over the past decade while platinum use has dropped.

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