Palladium tipped for record years after jump to 16-year peak

(October 31, 2017 - by Jan Harvey)

LONDON (Reuters) - Auto catalyst metal palladium will struggle to maintain its recent push to 16-year highs above $1,000 an ounce, but is still expected to set record average highs this year and next as emissions controls ramp up, a Reuters poll showed on Thursday.

Expectations that a shift in demand from diesel to gasoline-fueled cars, which use more palladium in their catalytic converters, and near-term tightness in the lending market helped drive palladium to its highest since 2001.

Banks have consequently hiked their palladium price forecasts for this year by around 5 percent in the last three months, and their views for next year by nearly 10 percent.

A poll of 22 analysts and traders conducted by Reuters over the last two weeks showed respondents expect palladium to average $852 an ounce this year, a record high, up from an average view of $811 in a similar poll carried out in July.

"We believe prices are susceptible to downside in the near term given the expectations for China auto sales to slow down in Q4 as well potential profit-taking pressuring prices lower," Standard Chartered analyst Suki Cooper said.

"But beyond a near-term correction, we expect prices to resume their uptrend."

Next year palladium is seen averaging $930 an ounce, well above a forecast of $849 an ounce three months ago. The metal has averaged $838 so far this year.

Its price rose above that of sister metal platinum in September for the first time since 2001, and it has broadly maintained that premium ever since.

Platinum, which is primarily used in diesel autocatalysis and as a jewelry metal, has suffered from a move away from diesel cars in the wake of the 2015 Volkswagen scandal. Analysts say mine output in major producer South Africa is not falling quickly enough to offset a drop in demand.

Respondents to the poll returned an average price forecast for platinum of $956 an ounce this year, which would be its lowest annual average since 2004. Next year the metal is expected to rise, but by less than 5 percent to an average $1,000 an ounce.

"Given its exposure to diesel-fueled cars, platinum has suffered from increasingly bearish sentiment and heavy shorting by hedge funds in the futures market," Julius Baer analyst Carsten Menke said.

"That said, a lot of bad news appears to be priced in at the current point in time. Upside should however be limited as supplies should remain ample."