New York -- (Kitco News) --Palladium prices outshone platinum in 2009 and positive investment sentiment and an expectation of increased fabrication use in auto catalysts and jewelry should provide support during the rest of 2010, CPM Group, the metals consultancy, said Tuesday.
In its Platinum Group Metals yearbook 2010, CPM said palladium prices on a percentage basis rose more than twice the percentage increase in platinum in 2009--up 117 percent at the Dec. 31, 2009 settlement compared to the year before. Platinum prices increased 56 percent.
Several developments aided palladium, CPM said, among them the shuttering of North American Palladium in Canada in late 2008 and through 2009, lower Russian production, reduced scrap recovery, increased investment demand and government incentives to increase auto sales in several countries.
"There is a very positive sentiment in the market toward palladium based on the expectation of increased use of the metal in its present fabricated uses (auto catalysts and jewelry), and the inability of supply to keep up with both the increased in fabrication demand and investment demand," CPM said in the Outlook.
"This positive sentiment is boosting investment demand, which has become a central factor in driving the price of palladium," CPM said. "Investors primarily are interested in palladium as they look to benefit from the price appreciation of the metal because of its use in auto catalysts and other industrial applications," the report said.
CPM said palladium has other uses, such as for electronics, chemical catalysts and petroleum refining catalysts. All were affected by the recession and as a result palladium took a beating in 2009, with total fabrication at 7,170,500 ounces, down 7.5 percent from 2008 levels.
"The onset of the global economic recovery since late last year has made investment in palladium a promising bet," CPM said in the Outlook. "Total fabrication demand is forecast to rise at a healthy 8.2 percent pace in 2010, reaching 7,795,000 ounces."
Palladium ETFs during the past few years have also added significantly to increased investor interest, CPM said. At the end of 2009, CPM said, the ETFs were backed by about 1.17 million ounces of palladium. This increased with the listing of an ETF Securities palladium ETF on the NYSE in January 2010, CPM said, noting that by April 15 the number had risen to 1.77 million ounces.
Palladium 's extensive use in gasoline auto catalysts also bodes well for its fabrication demand, CPM said. "The two largest auto markets in the world, China and the United States, along with some of the major fast growing auto markets, are primarily gasoline engine markets," the report said. "Vehicle sales in China and the United States are forecast to reach about 26.5 million during 2010, which is approximately 40 percent of forecast global v vehicles for that year."
In recent years, palladium has also been used in diesel auto catalysts, increasing its scope.
CPM said demand for palladium from the auto sector is forecast to reach 4,265,200 ounces in 2010, up 12.5 percent from 2009 levels."
Despite the push by governments and auto makers to develop electric vehicles, which would be a harsh blow to PGMs, CPM doesn't see any significant effect for several years. "Hybrid cars, which have b been in the market for over a decade, even today account for only around one percent of global car sales," the Outlook said.
Demand for palladium in the chemical and petroleum refining catalysts, jewelry and electronics is likely to grow in 2010, CPM said.
"There is a possibility that rising prices of the metal will result in some degree of thrifting in the metal's use in electronics, but this should be offset by the sheer volume of electronics expected to be sold globally during 2010," CPM said. "Electronics demand is forecast to reach 1,123,500 ounces in 2010."
Total palladium supply is forecast to rise during 2010, CPM said, with all major producing regions posting increases and an improvement in secondary recovery of the metal. "Total supply is expected to reach 8,265,706 ounces during 2010, up 8.2 percent from 2009 levels," CPM said. "The increase in supply is not expected to be enough to meet the needs of both fabricators and investors
