Told-you-so rout hammers palladium in worst week since 2016

Palladium posted the biggest weekly decline in more than three years as investors’ focus turned to demand amid concerns over slowing global growth.

The metal used in auto catalysts to curb emissions sank for the three days through Thursday before paring losses, putting it on course for an 11% weekly drop. The metal hit an all-time high on March 21 after a massive rally that spurred predictions a reversal was inevitable, with hedge funds cutting bullish bets.

• Subscribe to Fin24’s newsletter here 

Palladium futures for June delivery rose 2.5% to settle at $1 341.80 an ounce at 1:04 p.m. in New York, after dropping 7.9% Thursday and 6.2% the day before. The commodity slid 11% in March.

With the palladium market expected to be in deficit for an eighth year, manufacturers of gasoline vehicles have scrambled to get hold of supplies to meet stricter standards for pollution control.

Still, analysts surveyed by Bloomberg last week saw the metal ending the year in the $1 300s an ounce, partly as shortages are priced in and car sales in key markets slow. As prices scaled new highs in the first quarter, Saxo Bank A/S, Commerzbank AG and UBS Group AG were among banks warning of the potential for substantial pullbacks.

"Much of palladium’s doubling in price over the last eight months was driven by supply concerns, and these are well-explored," Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty, said in an email. "Naturally the momentum attracted speculative as well as trade support. The ongoing contraction in China car manufacturing and a recent string of weaker macro data has shifted focus to the demand side of palladium markets, and at the moment selling is begetting selling."

Prices entered a sharp decline on Wednesday, shortly after Anglo American Plc Chief Executive Officer Mark Cutifani told the FT Commodities Summit that the market was in a bubble. He expressed confidence, however, that the rally was on a firm footing, because consumers aren’t yet looking to substitute palladium for other metals like platinum or rhodium.

After this week’s slump, some analysts are predicting a rebound. Ole Hansen, head of commodity strategy at Saxo Bank, attributed the drop this week to "dismal liquidity and an extended speculative involvement."

"Very tight fundamentals have supported palladium and will continue to provide support," he said. "This was ‘just’ a small correction within a strong uptrend."

Citigroup also sees prices moving higher. "Our base case is that the market is likely to find its feet soon, bouncing back in the near term," analysts including Max Layton said in a report. As physical indicators are still reasonably tight, the market should rebound as it "still needs to incentivize substitution."

More than 80% of palladium comes as a byproduct from nickel mining in Russia and platinum mining in South Africa from producers including MMC Norilsk Nickel and Impala Platinum.