Problem of Plenty for Palladium - GFMS


"…investment was not seen to be lacking…"

Palladium is suffering from a problem of plenty. According to global research firm GFMS, palladium sector has been hit by the financial crisis and the metal's gross surplus almost doubled to nearly 650,000 oz. in 2008.

This happened despite an increase in palladium jewelry demand in China and the US. Again, production in South Africa and Russia, the top producer in the world, has come down during last year. Still there is a surplus of the metal in the market.

Again, autocatalyst scrap is estimated to have risen by almost a quarter. On the demand side, the 2009 GFMS platinum and palladium survey notes that palladium benefited from further substitution from platinum in autocatalyst uses, but thrifting and lower vehicle output still meant a 6% drop in this area was recorded in 2008.

Demand for palladium in jewelry was slightly higher, with offtake in the Chinese market up marginally and useful gains in the US market, where palladium jewelry remains at an early stage of development.

Despite these apparently supportive developments, GFMS believes that the annual average palladium price fall last year was due to generous above-ground stocks of the metal and a rise in inventory sales by the Russian government, which left palladium with a residual surplus of almost 260,000 oz.

However, investment was not seen to be lacking with, for example, palladium's two exchanged-traded funds seeing significant gains in 2008 and proving more resilient to liquidations in comparison with platinum.

GFMS expects that moderate palladium prices should in a limited way have similar effects in jewelry, both fabrication and scrap, and retail investment than platinum, although with considerably less dynamism in these areas.

Nevertheless, with continued if volatile investor interest, GFMS sees palladium prices ranging from $170/oz. to $325/oz.

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