UNITED STATES January 10 2017 11:23 AM

NEW YORK (Scrap Register): Palladium, drawing support from optimism about the auto sector, has been the top-performing precious metal so far in 2017, said Citi Research. 

The metal rose some 11% last week. The 21% increase in 2016 clearly marked a renaissance in the auto-catalyst metal as investors now look to be acknowledging the constructive thesis in earnest.

“Crucially, while the major industrial metals have surrendered to U.S. dollar pressure through December, palladium has held firm, closing in to the technical level of $750 an ounce and highlighting the level of conviction the market has on its specific (supply-demand) fundamentals,” said analysts at Citi. 

A key will be future U.S. and Chinese auto sales. These auto markets are mainly gasoline-powered and thus use palladium for catalytic converters, whereas Europe’s larger diesel-market share requires platinum. 

The fundamental story for sister metal platinum appears less robust, with this metal already under performing palladium by 4% so far this month. 

Key among the structural concerns are limited growth prospects for the European car fleet despite the pending Euro 6c emission standards later this year, as well as substitutive effects of mounting gasoline-engine vehicle market share, particularly on the continent. 

Meanwhile, the platinum-jewelry outlook is mixed due to heightened global prices and product competition, stagnation of key emerging-market currencies and the seismic shift in spending patterns of the millennial generation. 

Still Citi believes platinum may benefit from its relative value against palladium, especially as the platinum-palladium ratio is close to record lows.