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Palladium still has decent potential for further upside

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NEW YORK (Scrap Register): The palladium market remains in a “heavy” supply-demand deficit and prices may well keep rising for a while, although eventually car manufacturers will start to substitute away from the metal, said BMO Capital Markets.

Analysts said the supply of palladium is “stagnant” at a time of higher catalyst loadings for gasoline-powered vehicles. And with substitution being a slow burn rather than an immediate fix, there remains decent potential for further upside, BMO said.

However, in a market with very concentrated end use, a higher near-term price could mean more aggressive substitution and potentially a resultant medium-term demand void. Commodity markets typically have a great ability to solve for shortage situations.

Palladium prices soared in late 2018 and so far in 2019, rising nearly 70% since mid-August, BMO pointed out.

Following years of deficit, the market does look to have reached a point where available inventory is now extremely limited, BMO added.

Auto catalysts account for some 80% of global demand, and manufacturers have increased loadings to meet stricter emissions standards, BMO noted.

Eventually, there will be substitution away from palladium considering its hefty premium over sister metal platinum.

However, this switch may not be immediate. Qualifying a new catalyst is an expensive and time-consuming process, and we would expect this to occur only when the next range of vehicle models emerges, BMO noted.

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