– Palladium prices surge to new record high over $1,100/oz today

– Palladium surges past record nominal price seen in 2001 after 55% surge in 2017

– Best-performing precious metal and commodity of 2017 is palladium

– Palladium prices top platinum prices for first time in 16 years

– Strong Chinese car demand and switch from diesel to petrol cars sees demand surge

– Supply crunch as six year supply deficit & 2017 deficit expected to hit 83,000 ounces

– Palladium supply crunch to intensify if world’s leading producer Russia restricts supply and investors diversify into tiny palladium bullion market

Editor: Mark O’Byrne

Palladium prices surged to a new record nominal high today, over $1,100 an ounce on growing concerns of a supply crunch in the very small physical palladium bullion market. It is important to remember this is a nominal record high and adjusted for inflation, palladium prices would have to reach over $1,400 per ounce in order to surpass the 2001 record high.

Nymex palladium futures for March delivery increased by 2.5% to $1,087.35 yesterday after hitting $1,090.45, ‘the highest for a most-active contract in records going back to 1986’ according to Bloomberg.

Palladium prices very strong performance can be attributed to two main, complementary factors: falling supply and increased demand in the automotive industry. It has also benefited from a weak dollar, expectations of future market changes and geopolitical risk and tensions with Russia.

Supply concerns

The palladium market has seen a supply deficit for six of the last seven years. In 2017, the deficit was expected to reach 83,000 ounces.

In contrast, the platinum market has been in over supply, a situation which is expected to continue well into 2020.

According to Nymex tracked warehouse inventories shrank 25% in December. This marked the fourth consecutive annual decline.

The majority of the world’s palladium supply – over 80% by some estimates – are found in just one country, Russia. This in itself could complicate matters when it comes to supply as we have covered in the past.

Russia has restricted supplies of valuable and strategic natural resources, such as natural gas, in the past and geopolitical tensions and resource nationalism could see it do so again. This would lead to much higher prices in a very small, finite physical market that is already in deficit.

Dirty diesel

After years of hearing about the benefits of diesel engines and enjoying tax breaks from governments, motorists are now doing an about-face turn and embracing petrol engines which are now reportedly better. This is in part thanks to palladium which helps to combat emissions from such engines.

Diesel market share in Europe has been under pressure since carmaker Volkswagen admitted in 2015 that it had used illegal software to cheat U.S. emissions tests, slipping below 50 percent the following year for the first time since 2009, as reported by Bloomberg.

Kieron Hodgson, analyst at Panmure Gordon, told the Telegraph that palladium’s recent surge was directly connected to “the demise of the diesel engine and the resurgence of gasoline.” Forecasters expect the number of diesel engines to halve over the next ten years.

Some of the 17-year highs seen in the 2017 palladium price came on the back of expectations that demand in the automotive industry is going to keep climbing.