Wednesday February 23, 5:58 am Eastern Time
FOCUS-Palladium climbs into Europe but falters early
By Sharman Esarey
LONDON, Feb 23 (Reuters) - Palladium surged into European trade on Wednesday, as scarce supply of the metal needed by the booming automaking trade to clean exhaust gases prompted exchange measures to calm chaotic overnight trade.
Palladium, which has doubled in price in 2-1/2 months and hit a series of all-time peaks this month, opened the day at $800 a troy ounce with sellers only willing to offer metal at $850, before fixing at $798 and sliding back to $760.
Given upredictable supplies from main producer Russia, dealers and analysts expect the metal to swiftly hit $1,000 an ounce, with only a resumption of Russian supplies seen halting the metal's dramatic run.
``This market is out of control and we could easily see it gain another $200/300,' one European dealer said.
But matters may get more serious than that. With the widening spread, market makers may begin to question metal availability and hence their ability to quote both bids and offers for the market.
``The next level would be a question of the availability of metal (rather) than prices,' a trader said.
Trading ground to a virtual halt early on in Europe, given the gaping spread and news the Tokyo Commodity Exchange (TOCOM) would allow palladium futures trading only at Wednesday's closing prices in an apparent bid to force traders to liquidate huge long positions and ease market tightness.
``It was almost impossible to trade in Japan,' another European trader said.
Earlier this week, the exchange twice cut daily palladium trading limits in an effort to clamp down on scared shorts whose terrified pursuit of metal to cover positions has pushed TOCOM prices limit up for more than two weeks running.
But neither the reduction to 50 from 80 yen per gramme, nor the following cut to 20 from 50 did more than effectively shut down trading.
And traders said the exchange was playing with fire by changing the rules in the middle of the game and might scare off legitimate customers, although they were clearly concerned about a squeeze in the market.
Palladium is used in electronics, and 15 percent of demand is from dentistry, where the industry is looking at substitutes. But 58 percent of world demand of 8.3 million ounces comes from car manufacturers.
Car makers use anywhere from a couple of grammes of platinum group metals up to 15 grammes -- about half a troy ounce -- for catalysts in the large four-wheel-drive vehicles popular in North America.
And palladium demand could well grow rapidly given legislation tightening emissions standards in the major car markets of Europe, the United States and Japan over the next decade even as new car sales accelerate.
Russia, the world's largest producer has failed to deliver palladium in the first six months of each year since 1997 through bureaucratic red tape.
While it said recently that it would resume shipments soon, the market has been waiting to see the material before it counts on it. |
