Analysts have hiked their 2017 palladium price forecasts on expectations that reflationary policies in the United States will boost growth, and consequently car sales, this year, even as forecasts for other precious metals such as platinum are cut. Palladium, used chiefly in the auto industry, is seen as the most exposed of the precious complex to the economic cycle and has benefited from expectations for a bounce in growth next year.
A poll of 26 analysts and traders conducted in January returned an average 2017 palladium price forecast of $725 an ounce, up from $703 in a similar poll conducted three months ago. That would be 18 percent above last year's average price, and the highest year for palladium prices since 2014. The metal bounced 11 percent in the first week of this year, after rallying by more than a fifth in 2016.
"The story for an increase in the palladium price is still intact. Growing car sales and stricter regulation of exhaust fumes lead to a higher demand," LBBW analyst Thorsten Proettel said. "On the other side, supply is limited as palladium is extracted only as a by-product in Russian nickel mines and South African platinum shafts." In 2018 palladium is seen rising further, to $783 an ounce.
Stock markets and cyclical assets such as copper have benefited from speculation that new US President Donald Trump's commitment to cutting taxes and boosting spending will drive growth. However, those policies could fuel inflation, and consequently shore up the case for the US Federal Reserve to lift interest rates this year. That has hurt investment demand for non-yielding precious metals, weighing on expectations for gold, silver, and to an extent platinum.
Respondents to the poll returned an average platinum price forecast for this year of $1,003 an ounce, little changed from three months ago. That suggests prices will rise only slightly from current levels of $975 an ounce. In addition to threats to investment, appetite for platinum jewellery in China has been weak, and a slew of bad publicity over emissions from diesel engines, which carry a heavier loading of platinum in their catalytic converters, has threatened to curb buying of diesel-fuelled cars.
"Platinum may struggle as macroeconomic conditions become less favourable to non-yielding assets and supply-demand fundamentals deteriorate," Mitsubishi analyst Jonathan Butler said. "A stronger dollar combined with better returns in equities will be the main headwinds in the first half, though rising inflation and risk aversion could help platinum later on." However, much of the bad news for the metal is already priced in, analysts said. Next year the metal is seen averaging $1,100 an ounce, its highest since 2014.