According to the latest estimates from consulting firm PricewaterhouseCoopers (PwC), in 2012 automobile production will hit a record high – the third year in a row of new records. This year the world's automobile producers will use roughly 6.22 million ounces of palladium – twice their yearly demand 10 years ago.
As global automobile demand grows, demand for palladium and platinum is increasing, as both metals are used in the production of catalyst systems. The prices of both metals have rebounded strongly following the brutal sell-offs in late 2008.
Before stock and commodity markets entered their correction phase last spring, palladium climbed as high as $860 per ounce, a five-fold increase from the lows reached in 2008. As investors in the capital markets became increasingly afraid that the global economy could fall back into recession, in early summer of 2011 prices for platinum and palladium, along with most other metals, came under strong sales pressure.
After hitting a one-year low in October 2011, the palladium price has recovered by 30%, recently reaching $690 per ounce. According to PwC the supply situation for palladium markets will worsen, as in 2011 supply from Russia's national reserves reached the lowest level in eight years. In recent years Russia's palladium reserves have been compensating for possible supply shortages elsewhere.
But as Russian supply dwindles and South Africa, the second-largest palladium producing country (accounting for 40% of global supply, just behind Russia’s 44%), will probably experience declines in production.
Observers believe that the palladium price has a great upward potential. According to estimates from Barclays Capital, in 2012 the total palladium supply deficit will reach 275,000 ounces. Demand from emerging economies, and especially from China and India, will compensate for a possible decline in European demand.
Investors should keep an eye on palladium; analysts at Credit Suisse are convinced that this year the white metal could gain another 30% to hit $882 per ounce.
Roman Baudzus is a contributing writer for GoldMoney.
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