Home » Forecasts 2022
05/21/2021 Category: Forecasts 2022 Author: Olga Vladimirova
Palladium is a valuable metal not only in terms of its use in various areas of production. It is traded well on precious metals exchanges, and has a quite dynamic exchange rate, which, with the right approach to forecasting, allows you to make good money on it. Along with gold, oil, silver and platinum, palladium is one of the most liquid segments of trading exchanges. It is worth taking a closer look at what palladium forecast for 2022 awaits traders and how its rate is expected to change.
- How the price of palladium has changed over the past 5 years
- What affects the price of palladium
- Why did palladium deficiency occur?
- Palladium forecast for 2022 from experts
- Palladium price forecast in 2022
- Is it worth buying palladium at today's rate for investment?
How the price of palladium has changed over the past 5 years
Over the last five years, the price of palladium has been gradually creeping up, and this is caused by the use of the metal in the SpaceX space program, which uses the metal to assemble engines and the Dragon series ships themselves. The gradual change in the cost of the material is as follows.
- 2017 - January price was 1,350 rubles per gram. At the same time, the forecast for palladium prices in 2021 showed a decrease in value, contrary to its actual increase.
- 2018 – January price was 2025 rubles per gram of palladium. At the same time, the increase in cost was caused by the beginning of the active use of Pl in the space program of a new type of spacecraft. The forecast for the year in 2021 came true and by the end of it the value had increased.
- 2019 - at the beginning of the year, palladium costs 2,825 rubles, while in subsequent months its value also grew steadily. However, sharp drops in price were also observed. According to experts, sharp fluctuations were caused by the exchange of sanctions between Europe and the Russian Federation.
- 2020 – at the beginning of the year the cost was 3,883 rubles, but by the middle of the year the price had risen to 5,227 rubles per gram of palladium, which is almost twice as high as at the beginning of the year. At the same time, traders’ forecasts in January also spoke of an increase in the exchange rate for long-term investments.
- 2021 – at the beginning of the year, the palladium exchange rate was 5,823 rubles per gram of metal. By May, the exchange rate reached a record level of 7,181 rubles per gram of metal. According to stock analysts' forecasts, in the second half we can expect a short-term drawdown in the price level, but by the end of the year the rate will exceed the indicators and again break the record.
What affects the price of palladium
Palladium is the rarest metal in the crust of our planet, therefore its base cost per gram is very high, since it is based primarily on mining methodology and processing technologies. It is worth noting that in the Russian Federation, metal mining became available relatively recently, only in 1922. Moreover, for almost 100 years, Russia has become the world leader in the supply and production of palladium.
The export market of the Russian Federation accounts for 40% of all world metal trade, and the possibility of import directly depends on the possible export of the supplier country itself. Consequently, if European countries impose sanctions prohibiting EU countries from purchasing metal from the Russian Federation, its cost increases exponentially, which is one of the levers for controlling the exchange rate.
It also affects the price and methods of using the material in various global technological processes. In the simplest example it would look like this. Let’s say that in 2021 a new technology is discovered that makes it possible to produce cars or other equipment of significantly higher quality and at a lower cost, just by replacing one metal with palladium. The technology itself is profitable, easily integrated and used by many countries, then the demand for metal will increase significantly. Demand also generates an increase in the price level for any material.
Today, the automotive industry cannot do without this metal, and the demand for cars themselves is still growing, as is the demand for palladium. In the modern world, the demand market significantly exceeds the number of offers for the purchase of metal. This is a simple dynamic that allows us to make a forecast for palladium prices for 2022. Provided that the metal itself cannot be replaced with a cheaper analogue.
Breaking through the February bottom
Palladium prices have fallen below $2,300 per ounce, breaking through the February 2021 level, said commodity market analyst Oksana Lukicheva. That is, from the moment before the accident at the Norilsk Nickel mines, which occurred as a result of flooding. This means that after the failure of recent months, the company’s normal supply of metal to the market has been restored. Norilsk Nickel provides about 40% of the world's palladium supplies, and the resumption of volumes is the main motive for relieving speculative tension in the market.
On the demand side, there are also some factors that contribute to the fall in palladium prices, Lukicheva notes. This is, first of all, a decrease in demand from the automotive industry - both due to a decrease in car production and due to the gradual transition to platinum. This process will put pressure on the price of palladium in the coming months. Therefore, the expert believes, an upward correction is possible, but a price recovery to the level of $3,000 per ounce is unlikely.
Meanwhile, on Tuesday, August 24, palladium prices in morning trading showed moderately positive dynamics, adding +0.4% and expanding the growth territory since the beginning of this week to +6.4%, from $2262 to $2420 per troy ounce. But this two-day growth is so far only a corrective rebound against the backdrop of a collapse in palladium quotes by 14.2% during the week from August 16 to 20, notes senior analyst at Forex Optimum Alexander Rozman.
The reasons for the deterioration of the palladium market have been accumulating since the beginning of this August, when disappointing macroeconomic data for the largest economy in Asia began to be published, Rozman recalls. In China, the Manufacturing Purchasing Managers' Index (Caixin PMI) unexpectedly fell from 51.3 to 50.3 in July, the lowest level since April 2021. Then the growth rate of industrial production fell to the lowest level since September 2020 - from 8.3% y/y in June to 6.4% y/y in July. Finally, retail sales growth in China slowed in July from 12.1 y/y to 8.5% y/y.
For palladium, the slowdown of the world's main production plant is critical, Rozman explains. 90% of the consumption of this metal comes from industry, mainly automotive. Therefore, when the worst fears began to be confirmed by reports from automakers (Volvo stopped production in Sweden for 7 days, Nissan announced a halt in car production at the US plant until September, Toyota plans to reduce production by 40% for the entire September) it became clear that prices palladium is expected to decline.
The only thing missing was a trigger for price movement in the market. This trigger was the increased likelihood of an earlier curtailment by the Fed of its $120 billion per month bond purchase program. Against the background of a slowing global economy, the reduction in monetary stimulus increases the risks of an even greater slowdown in economic growth, and palladium, of course, played out its fundamental reasons against the backdrop of the sell-off in risk assets last week.
Why did palladium deficiency occur?
The shortage of metal is directly caused by increased demand, which many times exceeds supply. A replacement for the metal has not yet been found, but it is used by almost every country. Sectional wars between major suppliers (Russia and the US) also affect buyers. Many automobile concerns are unable to purchase the necessary metal due to prohibitive political regulations.
It is also worth noting that the production of palladium is a very harmful process for the environment. Therefore, China and the United States have introduced strict standards for the extraction, smelting and use of palladium raw materials, which significantly reduced the possibility of its use. But the main reason for the shortage remains the imbalance of supply and demand on the global metals trading market. According to experts, the forecast for the price of palladium in 2022 indicates an increase in cost.
Palladium froze in anticipation of Jackson Hole
It is obvious that the macroeconomic weakness, which is becoming more and more noticeable, is not a local phenomenon, believes Alexander Rozman. On Monday, August 24, data on business activity in the manufacturing sector of Australia, Japan, the Eurozone, Great Britain, and the United States was released - and everywhere in August a fairly serious slowdown was recorded, indicating that the fundamental weakness of palladium will continue. The only question is when a new trigger will appear that can provoke another wave of sales of risky assets, along with which palladium prices will go down another notch.
This week, the main market trigger is the Jackson Hole symposium on August 26-28, where the Fed is expected to show softness and not announce a time frame for winding down the bond purchase program. If this happens, palladium will have the opportunity to expand its rebound to the resistance zone of $2550-2650 per troy ounce, the expert predicts. Macroeconomic negativity will not allow prices to go higher.
But if the American regulator surprises the markets by announcing the timing of the winding down of incentives, then for palladium this will trigger another wave of decline towards the support zone of $2100-2200 per troy ounce. It is very difficult to fall lower from both a technical and fundamental point of view - yet there remains a supply deficit of 0.9 million ounces in the palladium market.
As short-term technical guidelines in the medium-term fork between an increase to 2550-2650 dollars and a decrease to 2100-2200 dollars per troy ounce, we can note the boundaries of the local trading corridor of 2350-2450 dollars, Rozman believes. Given the relatively positive sentiment in global markets today, August 24, palladium prices will almost certainly try to rise closer to $2,450. However, a truly important signal for the start of a medium-term movement will be a breakdown of one of the boundaries of the local trading corridor of $2350-2450, which is logical to expect by the end of this week, when the symposium in Jackson Hole begins.
Palladium forecast for 2022 from experts
At the moment, the forecast for palladium indicates an increase in its price next year. In world politics, sectional confrontation not only does not decrease. But it is also increasing momentum, which contributes to shortages, and, consequently, to a stable increase in the cost of raw materials. Also, given the progress of some countries in the use of technologies using this metal, the demand for it will also increase at a steady rate.
It is also known what will happen to palladium in 2022 in terms of the use of the metal in industrial aspects. Firstly, the amount of raw materials used is expected to increase by 5-6%. On a global scale, this is a big indicator. Considering that Pl is also planned to be used in the production of new processors, and this is a market with multi-thousand demand, which means an even greater increase in the peak cost of raw materials.
Taking into account the combination of even these factors, although it is impossible to say exactly how much palladium will cost in 2022, however, we can safely say that its record price will be broken again next year, and already at the beginning.
Palladium price forecast in 2022
Considering the last 5 years, where there has been a steady increase in the price of palladium, we can confidently predict an increase in its value, however, it is difficult to name a specific price at the moment, since everything will depend on the second half of 2021. Professional analysts expect the price to initially decline around the fall, based on data for the past 5 years.
In percentage terms, the cost is expected to increase by at least 10-15%. At the same time, European analysts predict an increase of as much as 20%. This forecast is associated with hopes for a reduction in restrictions due to the pandemic, the introduction of vaccines, the lifting of restrictions on public events and, as a result, the holding of large advertising campaigns in the automotive industry, which will lead to increased sales of cars.
The aggravated political situation between large countries, as well as the tightening of quarantine measures, can change the situation in a negative direction. If global measures to counter the pandemic do not bring the desired effect, the consequences could result in a decrease in demand for all segments of the commodity market, including gold, palladium, silver, platinum, etc.
Ivolga Capital company blog | Palladium: turning an industrial metal into an investment metal
Palladium price chart for 2021. Source: Profinance
Palladium, like other precious metals this year, posted strong gains in the first few months and fell sharply in March before gradually recovering but never reaching its winter highs. The bet on palladium as one of the metals that can protect assets from inflation and capitalize on its shortage in industry has created investment demand for it and attracted many investors over the past year and a half. The March collapse in the commodity market led to the liquidation of precious metals positions by market participants, and when the shock situation passed, palladium quotes recovered towards their highs.
For a precious metal, these market movements are quite understandable. However, this situation was new for palladium - for a long time the logic of the movement of palladium quotes was different.
Palladium, unlike gold, is primarily an industrial metal. Its main use is the production of components for engines of higher environmental standards. The properties of palladium as a catalyst for converting carbon gas into less harmful substances are used by automakers to move to higher environmental production standards.
Structure of global demand for palladium. Source: Johnson Matthey PGM Market Report (May 2020)
Physical palladium is used in the automotive industry, the production of special industrial equipment and, to a lesser extent, in the jewelry industry. And this fundamentally distinguishes it from gold, where the driver of price growth over the past year was physical purchases of gold not only by central banks, but also by institutional investors as “investment gold” (for its physical storage6 creation of ETFs, etc.).
The rise in palladium prices began back in 2021 due to expectations of a sharp increase in demand for palladium in engines. Following the 2015 Volkswagen diesel engine scandal, the global auto industry and authorities have become more stringent about vehicle environmental compliance, and the use of palladium catalysts in cars has increased sharply, creating a shortage of the metal in the market. The trend was further strengthened by stricter environmental regulations in China and Europe, which required automakers to increase production of such vehicles.
The shortage of physical palladium still persists, but is decreasing every year. The shutdown of production and the fall in global demand for cars are now capable of reducing the shortage of physical palladium to nothing for the first time in the last ten years. However, these considerations are not observed in current quotes.
Global shortage of palladium in industrial production. Source: Norilsk Nickel
However, attention to palladium as an investment asset has sharply increased, and financial players have already joined in buying palladium futures and creating speculative positions in the metal. Price growth for futures contracts increased sharply in late 2021 and early 2020. In terms of the rate of change in quotations, palladium in 2021 was equal to gold, with the exception of some moments when speculative demand for gold was especially high. This can be seen, for example, by comparing indicators of the rate of change in quotes.
Dynamics of the Momentum indicator in palladium and gold quotes. Source: TradingView
As a result, in just over a year, from a metal whose price movement logic was determined by industrial considerations, palladium turned into an instrument with a significant share of speculative transactions that fueled the demand for futures contracts on it. The strong drawdown of quotes in the spring during a general market panic is another confirmation that palladium quotes are now determined primarily by the sentiments of futures sellers and buyers.
In such a situation, it only takes another strong correction, or a serious shock to the industry, to remind that the situation in the physical market is not so optimistic. And the story of the metal’s inclusion in the ranks of investment instruments along with gold and silver will easily turn out to be a story of yet another disappointed expectations.
The PRObonds #2 portfolio currently has a short position in palladium futures. Its financial results and the dynamics of changes in position over the past year are presented in the graph below.
Author: Ilya Grigoriev
Is it worth buying palladium at today's rate for investment?
Experts say that this year we should wait for at least a relative drop in the exchange rate to the limit of 6000-6500 per gram. Such quotes are expected in September or October and should be caused by the general situation on the commodity market, which is inherent in this period every year. If this forecast comes true, this will be the optimal entry point into trading. That is, it is at this moment that you need to have time to buy metal for a long period.
If expectations for a reduction in the price level do not materialize, then raw materials should be purchased in the period November-December. According to experts in the field of analytics and market analysis, this will be the last time period before the expected price jump. If it is missed, it is better not to enter into trading, since either the price will already increase, or the forecast for an increase simply will not come true.
In general, buying palladium at today's rate (6971 rubles per gram) is not profitable due to the rather slight deviation from the peak value in early May. You should wait until it drops to at least the limit of 6,500 (ideally 6,000) rubles in order to get the maximum predicted profit from each gram of metal purchased.
