Commodity investments push up palladium prices

 LONDON (Commodity Online): Palladium popped above 300/oz in mid-September, with its highest London fix $299/oz, on the 17th of the month. A rally in other precious and base metals, together with a general sense of economic optimism and renewed commodity investment inflows, all helped push palladium prices to their highest since August 2008.

More specific positive factors were a strong August for US car sales and a continuing car boom in China, both of which are palladium-biased autocatalyst markets. The US reclaimed its mantle as largest single car market, with passenger vehicle sales of 1.17m units in August, up from 935,250 units in July and the highest monthly figure since May 2008.

It was also 3.9% higher yearon- year, a remarkable turnaround from earlier this year, when year-on-year sales were at one point some 40% down. Of course, as has been the case in other countries, these US sales were boosted by government incentives, in this case the “cash for clunkers” scheme. That programme ended on 24th August, so what September sales figures reveal will be critical.

There seem to be no such concerns in China (although it too has its own incentive schemes), with August seeing sales of 858,300 passenger vehicles, 90% higher year-on-year. That comparison is flattered by a weak August 2008, but it was nevertheless the second highest month for car sales on record, beaten only by June 2009.

Judging by the steady expansion of exchange-traded fund’s palladium holdings, investors continue to like what they see in prospect for palladium. Total ETF holdings as of 18th September were above 1 Moz, with the UK ETF Securitie’s ETF held 498,212 oz and the Swiss ZKB ETF 546,424 oz, up collectively over 100,000 oz from the position at the end of August, with almost all the fresh inflows into the UK ETF. The ratio of palladium ETF ounces held to platinum hit 1.98, the most in palladium’s favour since March this year.

Palladium Outlook

Palladium’s rally is all down to the rebound in the major car markets, and investors have taken note. But the risks are evenly balanced right now. If the September figures for US new vehicle sales are perceived to be disappointing, then $300/oz will be difficult to cling onto, even with the current boom in Chinese sales.

And, having reached $300/oz, some investors may decide to take some profits. After all, palladium has found cracking $300/oz difficult, even as platinum has kept on rising – the ratio between the two widened from a low of 4.25 on 2nd September to 4.47 by the 17th.

Short-term London pm fix: $265/oz-$310/oz.

Courtesy: Fortis Metals Monthly.