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Palladium over $500/oz on China strength, investors: analysts


By Ben Kilbey


April 12 - The price for palladium has been propelled above the $500/oz mark on the back primarily of a strong auto recovery in China -- with some support coming from the US -- as well as ever increasing investor demand, analysts said. (See related chart: Platts Palladium London Final ($/troy oz): Apr. 2008 - Apr. 2010).


RBS analyst Daniel Major told Platts that when looking at platinum and palladium investment it is important to compare the size of the market to other investments such as gold. (Listen to related podcast: PGMs favored over gold on fundamentals: JP Morgan).


"Combined platinum ETF holdings rose by 8.6 mt or 277,000 oz (41%) in Q1, 309,000 oz of inflows into the New York fund being offset by modest redemptions from the other funds," the RBS commodity strategy team said in a research note on Exchange Traded Funds. "To put this into perspective, net inflows into the platinum funds in 1Q were equivalent to over 16% of estimated global consumption in 1Q. We forecast the platinum market will sustain a pre-ETF surplus of 570,000 oz in 2010; ETF inflows in 1Q have already consumed nearly 50% of this surplus."


"ETFs experienced 17.3 mt or 556,000 oz of net inflows in 1Q, increasing holdings by 48%," the analysts said on palladium. "This is equivalent to 28% of estimated palladium consumption in 1Q. ETF inflows in 1Q have turned our 2010 estimated 800,000 oz pre-ETF palladium market surplus (including 800,000 oz of shipments from Russian state inventories) to a surplus of less than 250,000 oz."


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Major told Platts in a telephone interview that these levels of interest/investment could have a "serious impact" on the supply/demand side.


RBS is more bullish on palladium over the longer term on the back of favorable fundamentals, especially increasing auto demand from China.


Major that it would not take much of a change in portfolio allocation to disturb either of the Platinum Group Metal funds. He noted that on a supply/demand basis both have the most favorable fundamental pictures.


Still, it is palladium that Major is most bullish towards.


He said that the supply situation in Russia where stockpiles are a state secret is the one negative possible influence on the palladium story in the near to mid term, but believes that supplies are likely dwindling.


However, he said that it is impossible to gage due to the fact that information is so secretive from Russia regarding stocks.


He added that on the plus side production in Russia has been flat over the last few years and additional supply from South Africa is also fairly muted.


Russia and South Africa are the world's two biggest PGM producers.


"Palladium has been a good trade, and there is more to come," Major said in the interview. "There is more upside in palladium going forward."


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