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Commodities Corner: Palladium prices drop to their lowest finish in more than a year

Palladium suffered a sixth decline in a row on Tuesday, with prices trading under $2,000 an ounce and posting their lowest finish in over 14 months as global computer chip shortages hurt demand for the metal in car manufacturing.

The recent moves come in stark contrast to the price rise earlier this year for the metal, which is mainly used in catalytic converters in gasoline-powered vehicles to help control emissions.

Both platinum and palladium are getting “hit hard yet again,” said Edward Meir, analyst at ED&F Man Capital Markets, in a Tuesday note. “The ongoing difficulties by automobile producers are surely weighing on both these complexes.”

The auto industry has taken a hit as a global shortage of computer chips leads to a slowdown in manufacturing, which in turn weakens demand for metals used to make cars, including palladium.

Also, in a report issued late last week, the World Platinum Investment Council said that it expects higher costs of palladium, used in vehicle pollution-control devices, to spur a gradual switch by auto makers to using more platinum in gasoline-powered cars and trucks.

On Tuesday, the most-active December palladium contract
PAZ21,
-5.64%

PA00,
-5.64%

settled at $1,975.60 an ounce, down $104.20, or 5%, for the session. It marked a sixth straight decline and lowest finish since early July 2020.

Losses for the metal mounted as technical supports gave way, Peter Grant, vice president, precious metals, at Zaner Metals, told MarketWatch on Tuesday. “Global auto sales have fallen to a 14-month low as well, sapping palladium demand even as supplies have rebounded from last year’s mine and refinery closures.”

He believes palladium is “oversold at this point,” so prices may see a “bit of a recovery into the $2,100/$2,200 range before selling pressure resumes.”

Palladium had climbed to their highest price on record at $2,981.40 on May 3, FactSet data show, according to Dow Jones Market Data. It’s fallen nearly 34% from that record.

Chris Blasi, president and founder of Neptune Global, however, told MarketWatch that “the precipitous drop in palladium’s price has been, and continues to be, a leading indicator of a global slowdown in economic activity.”

The Federal Reserve’s Beige Book of current economic conditions released last Wednesday revealed that U.S. economic growth slowed to a moderate pace in early July through August, as the spread of the coronavirus delta variant led to a pullback in dining out and travel.

The drop in palladium prices is also tied to the “concurrent weak performance in other precious metals, with an industrial use component,” such as silver and platinum, said Blasi.

He expects that palladium may “over shoot to the downside” in a “typical market overreaction” — possibly touching a spot bid price of $1,500 to $1,600 an ounce.

Palladium prices may then see a sharp recovery, “driven by supply/demand imbalances, which appear to be unchanging for the next several years,” said Blasi.

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