actual content Palladium mine supply production this year will fall to 5.9 million ounces, its lowest level in nearly 20 years and an 8% drop from 2013, while demand for the metal continues to grow, Citigroup outlines in a Dec. 1 research report.
The vast majority of this year’s losses stemmed from a six-month strike in South Africa. But flat-lining palladium production in Russia, a country that supplies about 40% of the world’s palladium, also contributed, say analysts at Citi Research, a division of Citigroup. What’s more, they say, they see “little prospect of any growth in Russian mine supply going forward.”
The analysts have calculated that over the last seven years, the above-ground stock of palladium has fallen by 40% from 19.71 million ounces to 11.93 million ounces and expect annual palladium deficits of 2.28 million ounces in 2014, 1.81 million ounces in 2015 and 1.82 million ounces in 2016.
On the demand side, the analysts point to stronger car sales in the United States and China, two markets that combined make up 40% of all vehicle production on the planet.
In the U.S., the top six carmakers reported year-on-year sales growth in October of 6.1%, “pointing to full-year sales at last moving above pre-crisis levels,” the analysts write. And they don’t expect car sales to slow, “as continued improvements in U.S. growth, improving access to financing and cheaper gasoline prices will continue to drive U.S. auto demand.”
In China, the world’s largest car market, passenger car sales from Jan. 1 to Dec. 1 this year grew by 9.7% year-on-year. In the January to October period, 1.4 million more passenger cars were sold in China than during the same period in 2013.
“We do not anticipate a significant moderation in the rate of car sales in 2015,” they argue, and forecast that sales of light vehicles in China will total 25.3 million next year.
Despite a strengthening US dollar that has wreaked havoc on many commodity prices, palladium should average US$870 per oz. in 2014 and by the fourth quarter of 2015 should climb back to the high of US$912 per oz. it reached earlier this year on Sept. 1., according to the Citigroup analysts.
They also point out that palladium “remains fund managers’ favored PGM play, judging by the trends in money manager positioning on the Comex market."
“Through most of September and October, net positioning has remained long to the tune of roughly 18,000 lots,” they write, adding that ETF holdings, “although boosted by the early year launch of two physically backed South African palladium funds, have seen little in the way of pull-back in volumes under management. Indeed, since the beginning of September, 71,000 ounces of holdings have been added to managed volumes.”
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