Palladium, which hit a nine-year high this November, looks bullish in the long and medium term considering the demand-supply situation.

From the recent high of $740 an ounce, analysts forecast that the metal will touch $850 in about six months. At around 70 per cent gain in prices since January this year, the metal has surpassed platinum and gold in the precious metals category.

Supply has remained almost flat since 2008 if not declined.

In 2008, the global production was 7.31 million ounce. In 2009, it dipped to 7.10 million ounce while in 2010, it is estimated to be 7.14 million ounce.

However, consumption has risen 11 per cent from 6.3 million ounce in 2009 to 7 million ounce in 2010, said Gautham K, a metal analyst with JRG Wealth Management.

This has been mainly due to surging sales in the automotive sector, especially in China, which accounts for 22 per cent of the global consumption.

As per 2009 estimates, 53 per cent of the consumption happens in the automotive sector, where palladium is used in catalytic converters that convert up to 90 per cent of harmful gases from auto exhaust into less harmful substances. The rest is used in electronics, jewellery and dentistry.

“Of late, the investment demand in palladium in the form of exchange traded funds is on the rise, though they still account for a negligible portion of the global consumption,” said Vivek Daya, analyst with Karvy Global.

On the supply side, reports about depleting stocks in Russia have been doing rounds, triggering price rise. “Russia has huge surplus since 1950s. The country has been releasing the stocks on a regular basis. However, the exact volume of stocks levels in Russia has not been made available,” said Gautham. Along with South Africa, Russia is one of the leading suppliers of palladium.

“Further, most of the commodities have been seeing significant price movements during recent times. The safe haven buying in precious metals has also been evident in palladium,” said Daya.

However, palladium prices in the past 10 years were quite volatile. From an all-time high of $1,095 in April 2001, prices declined to a low of $140 in 2003. There has been a steady upward movement to a high of $590 in 2008, but it further dipped to $160 in October, from where it moved up and reached a recent high of $740 in November 2010.

While not dismissing corrections in between, analysts find prices to touch a medium-term high of $850 and to surpass all-time high levels in around four years. zz

sangeethag

@mydigitalfc.com