Palladium to hit $3,500 before this rally is over – Bank of America

(Kitco News) - Palladium prices are seeing some profit taking Monday as prices settle down after hitting a new record high last week.

However, one international bank thinks that the metal still has plenty of gas in its tank to continue it rocket blast higher in 2020 as pollution reduction continues to be a significant theme. In a note Monday, analysts at Bank of America Securities, said that they see prices pushing to $3,500 an ounce before this rally ends.

The bank ’s target represents a nearly 61% gain from current prices. Palladium futures last traded at $2,176.10 an ounce, down more than 6% on the day. Despite the recent pullback BoA analysts noted that palladium prices have rallied more than 1,500% since 2009.
The analysts said that they remain bullish on palladium through 2020 as inelastic demand meets inelastic supply.

“This suggests that the rally may continue exponentially up to the point where some substitution occurs, more secondary metal hits the market or more stock is released, none of which seem imminent,” the analysts said. “In the end, something has to give: protecting the environment comes at the cost of a higher metals price,” the analysts said.

Palladium is a critical metal used in auto catalytic converters, which help to reduce harmful emission from gasoline-powered engines. The analyst explained that auto makers continue to add more palladium to their catalytic converters to meet ever tightening emission standards.

“We estimate that the average gasoline catalyst now contains $420 worth of PGMs, compared to $27/unit under Euro 2,” the analysts said.

While demand is expected to remain strong, BoA continues to see falling supply as the other side of their bullish equation. The analysts said that mine supply has been dropping since 2004.

Although some precious metal analyst say that higher palladium prices will lead to substituting cheaper platinum, BoA analysts don ’t see a lot of evidence of substitution.

Than analysts used import data from North Macedonia as a barometer as John Matthey operates a start-of-the-art catalyst production factory.

“Looking into the trade data, suggests that palladium shipments to the country have risen relative to platinum dispatches, suggesting that substitution is not yet making an impact,” the analysts said.

The bank also doesn’t see recycling resolving the precious metal’s massive supply deficit.

“There are limits as to how much more recycled palladium can come back to the market,” the analysts said. “Indeed, even if actual secondary palladium supply has persistently lagged behind potential, we don't believe that there is a large stock of spent catalysts available that could now be processed.”

By Neils Christensen

For Kitco News