Palladium Decline May Be Offset by Virus-Induced Supply Shock

Palladium Price Outlook, XPD/USD Analysis, Coronavirus – TALKING POINTS

• Palladium prices may fall as global demand shrinks from coronavirus pandemic

• But supply shocks could amplify XPD/USD losses amid South African lockdown

• After painful liquidation, XPD/USD rallied over 40 percent but is now fizzling out

How Has Coronavirus Impact Palladium Prices？

As a cycle-sensitive commodity, palladium has been a victim of the market-wide liquidation in risk-oriented assets as the coronavirus undermines global growth prospects. In 2019, XPD was the best-performing precious metal; year-to-date it is up only 14% after recently recovering from seven-month lows. Having said that, the disruptive nature of Covid-19 may in fact be a hidden source of support for palladium prices.

South Africa – the second-largest producer of the precious metal after Russia – recently announced a strictly-enforced 21-day lockdown and extended these measures to its mining operations. Following the government‘s decree, XPD/USD registered its largest one-day increase since 1997 and rose almost 25 percent. This disruption to production amplified the precious metal’s structural undersupply and helped buoy prices.

Palladium is typically extracted as a secondary product from mining operations targeted at other metals like nickel. The lag time between extraction and distribution consequently drove XPD/USD to record-breaking highs as demand for its use in catalytic converters surged in 2019. With the lockdown in place, global supply will likely be tightened and could help offset the downward pressure of weaker global growth.

The mining giant Anglo American announced that its Mogalakwena extraction site – the second largest in the world for palladium deposits – has reduced its output and number of workers on the premises. Having said that, the company followed up that these measures are subject to change. Palladium traders may therefore start to closely monitor developments in South Africa since policies there can influence XPD/USD price swings.

Palladium Price Chart

Palladium prices have surged since bottoming out at September 2019-lows following the double-digit selloff at the February peak. However, XPD/USDs over 40 percent rally may be coming to an end as the precious metal shows signs of exhaustion. If palladium turns lower, selling pressure may accelerate until prices hit support at 1950.50 where the downside force of sellers may be overwhelmed by buyers.

XPD/USD chart created using TradingView

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