Palladium Likely to Outperform in 2011


"Johnson Matthey estimates palladium demand will jump +12.26% in 2010."

Precious metals traded within narrow ranges with a positive tone in European session as an EU/ECB/IMF bailout for Ireland may help ease risks of contagion to peripheral countries. Both silver and palladium gained more than +1%, outperforming slow crawls of gold and platinum.

Societe Generale said palladium, gold and silver will extend their rallies in 2011 and precious metals will outperform agricultural products. The investment bank forecasts gold price will rise to $1,500–$1,600 in 2011 while silver and palladium will rise 19% and 21%, respectively.

We are also bullish on precious metals and believe palladium will be the best performer in the complex. Johnson Matthey estimates palladium demand will jump +12.26% y/y in 2010, following contraction of around -8% over the past two years. Although supply will increase for the first time in three years, surplus will only be around 45 Koz.—the smallest level since 2000. Potential shortage supply in Russia may result to significant palladium deficit in 2011. We find ourselves more optimistic on palladium's outlook than Johnson Matthey, especially on Chinese demand. In the interim report, Johnson Matthey said that 'the demand outlook for palladium is so strongly weighted toward Chinese economic and industrial growth that any softening of that growth could reduce demand, moving the market closer to balance.' While we agree that acceleration in China's tightening measures to curb inflation and asset bubbles will slow demand for palladium, the rise in living standards will increase domestic demand for vehicles. Moreover, new emission regulations will also stimulate uses of palladium as autocatalysts.

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