Last night and this morning, spot palladium prices first experienced a strange surge of over 10%, and then suddenly recouped most of the gains. Analysis indicates that the broad intraday volatility may be related to the short covering behavior of traders.
According to the quotation, spot palladium opened at $927.81 per ounce on Friday, with a intraday high of $1029.46 per ounce before falling back to around $950 per ounce. On Tuesday of this week, palladium prices fell to a nearly four month low of $867 per ounce.
(Spot palladium time chart)
As the background of the entire transaction logic, palladium demand is mainly concentrated in the traditional automotive industry, used for producing catalytic converters for filtering exhaust gases. Due to the oversupply of this metal, coupled with the rise of electric vehicles - these types of cars have no exhaust gas at all. The price of palladium has been continuously weakening since reaching $3000 per ounce in early 2022.
The supply and demand relationship and demand outlook are not optimistic, which has also made palladium a highly concentrated target of bears in the market. According to CFTC data, net short positions in palladium futures reached their highest level since December 2009 during the week of June 11th this year.
Analysts believe that the rapid rise in palladium in recent days is mainly due to the disturbance of short-term trading factors.
Bart Melek, Global Head of Global Commodity Strategy at Dominic Securities in Canada, said that as automakers are replenishing this metal, funds may be forced to cover short positions, so short-term buying can be seen.
Tai Wong, an independent metal trader based in New York, also pointed out that there has been a recent surge in palladium ETF purchases, leading to short-term physical shortages and spot premiums. This situation has caused some chaos in the already weak futures and spot markets, triggering many fluctuations and short-term arbitrage, and this situation may continue for a few more days.
According to industry insiders, London is currently the commodity trading center with the highest supply pressure in terms of physical supply of palladium.
The main global sources of palladium include South Africa, Russia, and North America. The Platinum and Palladium Industry Association in London ordered in 2022 that newly produced platinum and palladium from Russia be prohibited from entering the London market for trading. When the ban is issued. The palladium produced by Russia's nickel production accounts for 25-30% of the global supply.
In the long run, although the rebound in demand for hybrid cars may provide a boost to palladium prices, ultimately, the issue of supply and demand structure still needs to be addressed. Paul Dunne, CEO of Northham Platinum in South Africa, stated at the end of May this year that prices cannot recover unless the mining industry further reduces supply.
Paul emphasized, "We need to see real structural changes in palladium supply to re-establish pricing power in the market. This will obviously bring some pain, but I think it is necessary. At the current price level, neither miners nor refiners can make money."
