Palladium prices are reaching record levels, and investors believe that the rise is just beginning due to the shortage of supply, says Marvin G. Perez, columnist for the Bloomberg agency.
Metal, used in pollution control devices, has risen more than 9% in New York this year, the best result among the main metals, observes the author of the article. The demand is increasing thanks to China, which has the mission to reduce smog. Stricter pollution standards mean that car manufacturers are using more catalytic converters.
"The market has a very positive fundamental outlook," Maxwell Gold, director of investment strategy at Aberdeen Standard Investments , told the media.
Meanwhile, palladium production is extremely concentrated in Russia and South Africa, which together produce about three-quarters of the world's mining supplies.
However, a threat to their demand is their replacement. Historically, palladium has been cheaper than platinum, and has therefore been used as a popular alternative since the two metals share many chemical properties. But the recent rise has reversed the price ratio, and now palladium suffers the threat of replacing platinum.
Even so, manufacturers need 18 to 24 months for these changes, so it probably will not be a problem in the immediate future, said Suki Cooper, precious metals analyst at Standard Chartered Bank in New York.
As for substitution, "many manufacturers have indicated that it is not something that can be changed easily or quickly, even if it is economically possible," he said. "The long-term outlook remains positive."