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Palladium futures have soared to their highest levels since early 2001. And with no end in sight to a key supply disruption, many experts predict there is still room for prices to run.
Prices for the silvery-white metal have jumped about 20% this year, with the key futures contract hitting a 13-year high on Wednesday of US$864.60 an ounce. The main reason is a strike in South Africa, which began in January and is now the longest mining strike in the country’s history.
Recent talks to end the dispute failed, and it is not clear when they will restart. South Africa accounts for nearly 40% of global palladium production, second only to Russia.
“It’s quite conceivable that palladium could really pop if the mines in South Africa don’t restart soon,” said Patricia Mohr, vice-president and commodity specialist at Scotiabank.
Not surprisingly, uncertainty about Russia is also causing jitters in the palladium market. There are some concerns that sanctions could be placed on Russian companies — including key palladium producer OAO Norilsk Nickel — in response to the seizure of Crimea.
Then there is the Russian stockpile issue. The Soviet government hoarded huge quantities of palladium back in the 1980s due to a theory that it was needed for cold fusion (which was eventually discredited). It later began to unload those inventories.
Over the past several years, any palladium shortage in the market was quickly filled by the Russian stockpiles. Those inventories are now running low; in fact, some experts believe they are virtually gone. There is far less Russian inventory hitting the market today compared to last decade.
“Palladium deficits are now more of a sure thing,” said Bart Melek, head of commodity strategy at TD Securities. He was estimating a deficit of 1.6 million ounces this year, and that was before the South African strike proved to be more severe than imagined.
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