Fact ‘n’ figures: Citigroup favours palladium for 2015

Palladium mine supply production this year will fall to 5.9 million oz. — its lowest level in nearly 20 years, and an 8% drop from 2013 — while demand for the metal grows, Citigroup outlines in a Dec. 1 research report.

Most of this year’s losses came from a six-month strike in South Africa. But flatlining palladium production in Russia, a country that supplies 40% of the world’s palladium, also contributed, say analysts at Citi Research, a division of Citigroup. What’s more, they say, they see “little prospect of any growth in Russian mine supply going forward.”

The analysts have calculated that over the last seven years, the above-ground stock of palladium has fallen by 40% from 19.71 million to 11.93 million oz., and they expect annual palladium deficits of 2.28 million oz. in 2014, 1.81 million oz. in 2015 and 1.82 million oz. in 2016.

On the demand side, the analysts point to stronger car sales in the U.S. and China, which combined make up 40% of all vehicle production on the planet.

In the U.S., the top six carmakers reported year-on-year sales growth in October of 6.1%, “pointing to full-year sales at last moving above pre-crisis levels,” the analysts write. And they don’t expect car sales to slow, “as continued improvements in U.S. growth, improving access to financing and cheaper gasoline prices will continue to drive U.S. auto demand.”

In China, the world’s largest car market, passenger car sales from Jan. 1 to Dec. 1 this year grew by 9.7% year-on-year. In the January to October period, 1.4 million more passenger cars were sold in China than during the same period in 2013.

“We do not anticipate a significant moderation in the rate of car sales in 2015,” they argue, and forecast that sales of light vehicles in China will total 25.3 million next year.

Despite a strengthening U.S. dollar that has wreaked havoc on many commodity prices, palladium should average US$870 per oz. in 2014, and by the fourth quarter of 2015 climb back to the high of US$912 per oz. it reached earlier this year on Sept. 1., according to the Citigroup analysts.

They also point out that palladium “remains fund managers’ favoured PGM play, judging by the trends in money manager positioning on the Comex market.”

“Through most of September and October, net positioning has remained long to the tune of 18,000 lots,” they write, adding that ETF holdings, “although boosted by the early year launch of two physically backed South African palladium funds, have seen little in the way of pullback in volumes under management. Indeed, since the beginning of September, 71,000 oz. holdings have been added to managed volumes.”