Spot palladium prices in London hit a one-month high and briefly broke above the key level of $1,000 per troy ounce on Friday, driven by short covering and tight nearby physical supply.
Spot palladium XPD= was up 2.6% at $947 per troy ounce by 1655 GMT after reaching $1,027, its highest since May 22. Prices had touched their lowest in four months of $867.51 on Tuesday.
The signs of short-term liquidity tightness were visible in the exchange of futures for physicals (EFP) market, where parties exchange a futures contract for the physical product. According to Jeff Klein, a trader at Heraeus, the severe backwardation in the EFP market over the last few days and the sizable ETF allocation that has withdrawn metal from the market have set up the possibility of an “old fashioned short squeeze.”
The availability of palladium bars was especially tight in London, according to two industry sources. This is because Russian-made palladium bars produced after early 2022 have lost their “good delivery” status on the London market due to the start of Moscow’s full-scale invasion of Ukraine.
Palladium, primarily used in autocatalysts to curb harmful emissions, saw a 39% slump in 2023 due to expectations of rising market share for palladium-free electric vehicles (EVs). However, the metal is supported by this year’s brighter sales estimates for hybrid cars, which still require palladium, and the continuing structural deficit in the market.
Wilma Swarts, head of platinum group metals research at consultancy Metals Focus, said that above-ground stocks have declined to their lowest levels on record (dating back to 1980) this year, and further deficits are expected in 2024 and 2025, which will tighten liquidity and likely lift or support prices this year.