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Palladium price correction possible, but supply issues supportive: HSBC

Washington — Though a resolution to labor disputes in South Africa could force a correction in palladium prices, supply-side issues are likely to keep prices at elevated levels, UK-based HSBC said Wednesday.

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South Africa's Association of Mineworkers and Construction Union has threated to launch strikes at 15 mining sites next week if an agreement is not reached with miners at Sibanye-Stillwater's gold operations.

Additional strikes could affect production at South African platinum-group metals producers and exacerbate an acute supply deficit in palladium production, bank and brokerage analysts have said in recent days.

"Even a modest glitch in PGM output could aggravate supply tightness with the market facing a deficit," HSBC chief precious metals analyst James Steel said in a report Wednesday.

Palladium is mostly used in catalytic converters of gasoline-powered vehicles to control emissions of certain greenhouse gases and pollutants.

Russian producer Norilsk Nickel, which accounts for 40% of annual palladium production, has said that tighter emissions standards in all major auto markets, combined with flat mine output, could widen the production deficit this year, Steel noted.

Those fears, along with strong auto demand, have caused palladium prices to rise more than 4% this week. For the year, palladium is up nearly 27%.

Norilsk forecasts a production deficit of 800,000 oz this year, while HSBC expects the deficit to reach 937,000 oz.

Palladium supply is also being hampered by low Russian inventories, Steel noted.

Norilsk has said its palladium fund reserves stood at 130,000 oz at the end of 2018.

"There are enough supply-related concerns to keep palladium prices high, although any resolution to South African industrial disputes could trigger a correction," he said.

-- Nick Jonson, nick.jonson@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com