• Vehicle sales remain the main market driver.
  • Palladium largely weathered the 2020 global economic storm.
  • China is the new frontier for commodity growth.

After a good run over five days, Palladium prices fell on Monday, thanks to a rebounding US dollar. The commodity closed 2020 on a high, rising by approximately 29% year-on-year.

US car sales, new air pollution regulations in China, and post-covid recovery are the key market drivers.

US car sales

Palladium’s main function in vehicle catalytic converters is to convert toxic emissions like carbon monoxide and nitrous oxides to less-harmful ones like nitrogen, water, and carbon dioxide. This makes vehicle sales a key determinant in the global demand for the commodity.

According to J.D. Power and LMC Automotive, the total US new-vehicle sales for 2020 were about 14.5 million units. This was nearly 15% lower than the 2019 figures. It was also the biggest decline since 1980. However, this is “good news,” considering that back in April 2020, it had been projected that sales would be down by 80%.

The relative stability in auto sales last year greatly influenced the current palladium prices.  The rollout of the COVID-19 vaccine has improved the outlook for the economy in 2021, and auto sale figures are expected to improve as a result. Such an outcome would be good for palladium prices.

The China factor

Following the global impact of COVID-19 and its association with air pollution, many governments may impose greater restrictions on vehicular emissions. Palladium’s significance in catalytic converters means that such regulations will push up prices.

Developments in China are in sharp focus because of its status as the world’s second-largest car market.

New pollution regulations in China are expected to trigger increased demand for palladium. As part of the regulations, it will be mandatory for vehicles in China to be fitted with emissions-reducing equipment.

About a third of the world’s vehicle production happens in China, and it is estimated that the new regulations will result in the consumption of 30% more palladium per vehicle.  Therefore, the Chinese market is forecast to be the most significant market in the short and long term.

The COVID-19 effect

Despite growing confidence in global economic recovery, the coronavirus pandemic remains an existential threat.

Having been the original epicenter of the virus, China was the first major economy to rebound from the effects of the virus. However, a recent upsurge in infection rates has increased fears over possible lockdowns, job losses, and reduced vehicle purchases.

Continued travel restrictions in the pandemic era have resulted in reduced demand for vehicles, thereby reducing industrial consumption of palladium.

Beyond car sales, US industrial activity is key to the growth of demand for palladium.  The incoming Biden administration is expected to get the nation back to the Paris Climate Accord. A return to the climate-sensitive accord will likely trigger increased demand for palladium for use in industrial control of air pollution.

Technical analysis

Palladium price has been on a steady upward trend, making it the most valuable precious metal. It is trading at $2,395, which is 62% above last year’s low of $1,497. On the daily chart, the price has moved above the 25-day and 50-day weighted moving averages (WMA).

Also, it seems to be forming an ascending triangle pattern. In technical analysis, this is usually viewed as being a bullish formation. Therefore, with the triangle nearing its peak, the price will likely break-out higher, with the next target being at $2,700.