Palladium surpasses US$3,000 for first time on supply shortfall

[BENGALURU] Palladium on Friday raced past the US$3,000-an-ounce mark for the first time, fuelled by concerns about a shortage of the metal which is embedded in automobile exhausts to reduce emissions.

Palladium hit a record high of US$3,007.73 earlier in the session and was steady at US$2,952.69 by 1.55pm (1755 GMT).

Prices have shot up more than 20 per cent since March 16 when Russia's Nornickel, the top producer, announced that flooding at two of its mines would reduce output.

"You have auto industry buying more palladium, the electronics industry buying more palladium and hence a tight market," said Jeffrey Christian, managing partner of CPM Group.

"It's primarily a speculative surge in demand, and that can go on for a long period of time and keep prices elevated," he added.

Demand from the auto industry could climb further as a semiconductor chip shortage that has curtailed production eases later this year.

Commerzbank analyst Carsten Fritsch said prices were unlikely to remain above US$3,000 and would begin to fall as automakers switch from palladium to cheaper platinum.

"At this (price) level, more and more car manufacturers will think about substitution," he said.

Tighter environmental rules have forced automakers to use more palladium in gasoline engines in recent years, but substitution and a shift to electric vehicles may eventually erode demand.

Meanwhile, spot gold dipped 0.1 per cent to US$1,769.86 per ounce as the dollar firmed, making bullion more expensive for buyers holding other currencies.

US gold futures settled little changed at US$1767.7.

"Right now there is an increase in investor and consumer confidence in the state of the world and in the state of the US economy, and therefore the state of the dollar," CPM Group's Mr Christian said.

Gold has risen 3.7 per cent this month, its first monthly gain this year.

Silver fell 0.8 per cent to US$25.88 per ounce, but is up 6 per cent in April - its biggest monthly gain since December.

Platinum was flat at US$1,198.00 per ounce.

REUTERS