The crisis of lack of core has led to massive production cuts by global car companies, and the decline in car production is dragging down palladium prices. NYMEX's most active palladium futures contract has fallen 18 per cent since September, the worst month for the breed since November 2015, according to the data.
Palladium is mainly used in automotive exhaust catalysts and jewelry industry, of which 73% is used in gasoline vehicle exhaust treatment catalysts, so car sales have a huge impact on palladium demand. "if you can't get the chips to make cars, you don't need that much palladium for the time being," said Bob Haberkorn, a senior market strategist at RJO Futures.
The core-scarcity crisis continues to worsen, and US consultancy iRuiplatin (AlixPartners) predicted on Thursday that global car production would fall by 7.7 million vehicles in 2021 and auto industry revenue would fall by $210 billion-91 per cent higher than expected in May, with no signs of a chip shortage easing during the year.
In recent weeks, major carmakers have warned that chip shortages could prolong production cuts.
Hedge funds and other investors are becoming pessimistic about the outlook for palladium, with bearish bets surpassing bullish bets for the first time in three years in the week of Sept. 14, according to the Commodity Futures Trading Commission.
"if fundamentals have deteriorated, why hold and be bullish on the metal?" said Giovanni Stanovo (Giovanni Staunovo), a commodities analyst at UBS Wealth Management.
Because of the wide range of uses in the palladium industry, palladium is sensitive to changes in economic prospects. Palladium futures rose to a record high of around $3000 an ounce earlier this year in anticipation of a strong economic rebound.
A stronger dollar also weighs on palladium prices
In addition to falling demand for palladium due to falling car production, a stronger dollar has also dragged down palladium prices. Because palladium is denominated in dollars, palladium becomes more expensive for US overseas investors when the dollar appreciates.
The ICE dollar index has risen nearly 4 per cent so far this year.
The Fed said on Wednesday that it could start scaling back its asset purchases and raising interest rates next year, pushing up long-term Treasury yields, which could also make precious metals less attractive to investors.
Some optimists believe that if the trend in the chip industry improves, palladium prices will pick up. Bart Melek, head of commodities strategy at TD Securities, said in a report that the chip shortage was expected to end in the second half of 2022 or 2023, which could unleash pent-up car demand and push up palladium prices.
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