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Palladium prices still soaring; Substitution risk high

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NEW YORK (Scrap Register): Spot palladium prices hit yet another record high early Wednesday, but this could ultimately mean the risk of substitution toward more use of sister metal platinum in auto catalysts, said BMO Capital Markets.

Analysts said for now, palladium remains underpinned by Europe’s shift away from diesel-powered engines, which require platinum instead. Gasoline-powered cars historically used palladium, although there has been conjecture for some time now more platinum could be used as palladium prices keep soaring.

According to the research note, BMO reports spot palladium got up to $1,340.50 an ounce. The metal is already up 6.5% since the start of the year.

Despite significant outflows in palladium ETF [exchange-traded-fund] holdings, which have declined over 18,000 ounces (minus 15%) since the beginning of the August 2018 rally, palladium continues to benefit from an unresponsive supply outlook and we see a persistent deficit over the coming years and improving auto-catalyst demand outlook as supportive of prices.

However, with current prices trading at a near $500 premium to platinum, substitution risk remains high.

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