By Joe Wallace
Palladium prices soared Tuesday despite shutdowns and delays at car plants in China, the world's biggest consumer of the precious metal, highlighting an extended spell of volatility in the commodity's market.
The price of the metal -- which is in high demand from auto makers seeking to meet tighter emissions standards -- jumped 5.4% in the New York futures market, hitting a record of $2,442.20 a troy ounce. The continued rise took traders and analysts by surprise as it extended the advance in 2020 to 27.8%.
China's automotive market has been disrupted this year by the outbreak of the new coronavirus as factories were forced to halt operations to help curtail the contagion. Germany's Volkswagen AG has postponed resuming production at some of its Chinese plants until next week as the quarantine of nearly 60 million people constrains the transportation of both parts and workers.
Palladium's price, meanwhile, has rallied as its supply has been strained by years of stalled production by miners.
"It's the most dysfunctional market I've ever seen in my life," said Michael Widmer, an analyst at Bank of America. If palladium keeps growing more expensive, it will force car manufacturers to electrify their vehicle fleets faster than previously planned, he added.
Upheaval in China, the world's second-largest economy, following the coronavirus outbreak has weighed on the price of many raw materials, including oil and industrial metals. Brent-crude futures fell 2.3% on Tuesday, while copper slipped 1% on the London Metal Exchange.
Demand for palladium surged in recent years as officials in the European Union and China imposed stricter restrictions on emissions from cars, amid worries about the impact of certain pollutants on public health. When applied to catalytic converters that are fitted to gasoline-driven cars, the metal is highly effective at converting toxic gases such as carbon monoxide into substances that are less toxic to inhale.
Almost all gasoline cars manufactured in China this year will meet updated emissions standards, up from two-thirds in 2019, according to a recent report by the U.K.'s Johnson Matthey. The British chemicals maker said this will raise the average amount of palladium that car makers use in each catalyst, and could push the global demand for the metal in the auto industry above 10 million ounces.
Supply hasn't kept up pace with consumption because palladium is typically produced as a byproduct of platinum, and miners are wary of flooding the weaker platinum market with excess material.
Prices have spiked as a result, providing a windfall for the handful of South African and Russian miners that dominate production of palladium and its sister metals. The rally is hurting auto makers already grappling with a downturn in the global car market and the cost of designing and producing new fleets of electric vehicles.
Global demand for palladium will exceed production by 1.9 million ounces in 2020, Anglo American Platinum Ltd. forecast in its annual report on Monday. The company said the rising price of palladium contributed to a 33% rise in net sales revenue in 2019.
However, outgoing Chief Executive Chris Griffith said there were signs that demand was now starting to weaken in response to high prices. He predicted that auto makers may start to use more platinum -- almost $1,500 an ounce cheaper -- instead of palladium in their catalytic converters.