Analysis
- Palladium remains underpinned in high ground, having set a fresh 2016 peak at $749.50 per oz last week.
- Selling pressure have been well received so far, as implied by the longer lower shadows on the recent daily candlestick formations.
- But the failure to make further headway suggests the metal lacks momentum. This is reflected in the stochastics, which have converged in high ground, and the RSI, which looks overbought.
- Immediate support is seen around $725 per oz from the early-October high.
- Additional support is seen between $693 and $670 per oz, where the 20, 100, 55 and 40 DMAs are clustered.
- Support below is seen at $611 (the 61.8% Fibo of the June-August rally), at $604 (200 DMA) and at $591 from the medium-term rally.
- A break higher would target the band of resistance at $780-830 from October 2014-May 2015.
Macro factors
Meetings this week of Opec members, who are trying to curb oil production and end years of oversupply, could prove pivotal for short-term palladium prices, given the implications for fuel costs and the knock-on effect on spending on big-ticket items.
ETFs holdings have dropped sharply in the past week – record rand-denominated palladium prices have triggered liquidation by South African investors. Holdings now total 1.91 million oz, down 1.18 million oz or almost 40% from their peak of 3.096 million oz in August 2014.
The global palladium market will record a 651,000-oz deficit in 2016 compared with the 843,000-oz deficit forecast previously by Johnson Matthey. It sees total supply rising 1% to 9.03 million oz – a near-10% rise in recycling volumes will offset static mine production. Palladium demand from the autocatalyst sector is set to increase 2% to 7.8 million oz, fuelled by growth in sales of gasoline-powered cars. JM forecasts another year of substantial deficit in 2017 – demand will continue to outstrip growth in supply despite rising supply from recycling volumes.
The latest round of vehicle sales results continue to signal rising underlying PGM demand. Chinese passenger vehicle sales continue to record strong grow, rising 20.3% year-on-year in October, according to the latest figures from the China Association of Automobile Manufacturers. Sales totalled 19.1 million vehicles in the first ten months, up 15.4% on January-October 2015. Passenger vehicle sales in Europe were up 7.2% in January-October. But the latest US figures show signs of fatigue, with sales down by 0.2% year-on-year in the first ten months.
Palladium’s fundamentals will continue to improve – fallout from the Volkswagen ‘Dieselgate’ scandal will lead to a shift away from diesel-powered vehicles in Europe. Carmaker Renault recently suggested diesels could disappear from most of its European car range.
Conclusion
Palladium is holding in high ground despite absorbing a sizeable amount of ETF liquidation and may get a lift from the renewed bullish sentiment in the wider commodity complex. But the fact the metal is struggling to make serious headway above $745 per oz suggests gains continue to release pent-up scrap supplies and that some consolidation may be necessary in the short term.
