Palladium May Gain From Yuan Revaluation

Source:

"The move to end the yuan's peg to the dollar will lower the import costs of palladium for China's automobile manufactures."

The move to end the yuan's peg to the dollar will lower the import costs of palladium for China's automobile manufactures. Overall, cheaper costs to manufacture cars and a probable decline in car prices will increase automobile demand. This, in turn, will increase the demand for palladium and the metal's price.

China surpassed the U.S. to become the world's largest automobile market in 2009. During the first five months of 2009, production in the domestic auto sector zoomed 56% from a year earlier. Since the auto industry accounts for nearly half of the world's palladium demand, an uptrend in China's automobile production will benefit palladium.

Palladium and platinum are used in catalytic converter applications in automobiles. Palladium has been substituting for platinum as product differentiation is insignificant. However, price spreads between the two metals is quite substantial. Currently, palladium and platinum for spot delivery are trading around $484 an ounce and $1,586 an ounce on the New York Mercantile Exchange.

Palladium deficit is expected to elevate during 2010 because of China's demand, thereby supporting higher palladium prices.

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