Palladium May Gain from Yuan Revaluation

Source:

". . .uptrend in China's auto production will benefit palladium."

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.

Palladium producers are poised to benefit from the increase in palladium prices.

China surpassed the U.S. to become the world's largest automobile market in 2009. Because 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/oz. and $1,586/0z., respectively, on the NYMEX.

The palladium deficit is expected to elevate during 2010 due to China's demand, thereby supporting higher palladium prices.

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