(Click here for an interactive chart of palladium prices)
Heraeus precious metals wrote in a note on Tuesday that palladium would “remain volatile this year as the market is finely balanced and any events which change supply or demand could shift the market further into surplus or into deficit.”
Tensions between Russia and the West over Ukraine have heightened concerns supplies may be disrupted, according to Henrik Marx, global head of trading at Heraeus Metals Germany GmbH & Co.
It’s a sharp reversal in fortunes for palladium, which was the worst-performing major commodity in 2021. The impact of the semiconductor shortage on car production soured the demand outlook, causing prices to plummet in the second half of the year. Only iron ore, hit by China’s property market crisis, and silver have come close in terms of losses.
In the over-the-counter market, the metal has sunk rapidly into backwardation — a market structure in which spot prices are higher than those for forwards — signaling tightening availability.
Hedge funds trading the New York palladium futures may also have been caught short by the recent move, with commitment for traders data as of Jan. 18 — the most recent available — showing short interest near the highest since 2018. Those looking to close their positions would be forced to buy metal at elevated prices.
“I think its ‘squeezey’ and has the capability to run on geopolitical headlines and risk with no one willing to come in and provide the selling pressure to keep it capped,” said Nicky Shiels, head of metals strategy at MKS PAMP SA.
“If it was really being squeezed, we would see a $1,000 rise in days given the illiquidity.”
“A rebound in auto production should create upside in palladium in 2022,” said Morgan Stanley in December.
The bank sees the metal averaging $2,100 an ounce this year.
(With files from Reuters and Bloomberg)
