Palladium price lags on weak Chinese car sales

While the gold price and platinum price continued their rally in the last few weeks, with silver stable, palladium prices lagged other precious metals. Palladium is mainly dependent on global car industry demand. Weakening economies, from the United States to many European countries led to sales in palladium markets with steadily falling demand from investors. 

The Chinese automobile market has been a stabilising factor for the world economy over the past three years. Palladium prices were hammered at the height of the financial crisis in autumn of 2008 and crashed to $161 per ounce. State-sponsored cash-for-clunkers programs in the U.S. and Europe – coupled with rapidly expanding lending for car purchases by Chinese banks – resulted in a strong increase of the demand for palladium among industrials and investors. This took the price of palladium to a new all-time high of $855 per ounce in February 2011 – a more than fourfold increase from the end of 2008.

America's automobile industry no longer has the larger share of global palladium demand. According to a report from the China Association of Automobile Manufacturers (CAAM), the country produced about 10.5 million cars in the first half of 2011, an increase of 2.33% year-on-year. Vehicle sales rose by 3.22% in the same period.

While investment demand for palladium has fallen significantly in recent months, the white metal´s price development seems to depend on China´s future economic growth. Vehicle sales dropped in July in the world's most important car market. Should Chinese vehicle sales – due to growing credit  troubles in the country´s domestic banking sector – decline further in the coming months, palladium prices can be expected to drop further. The $725 per ounce level is an important technical support, should this level be broken, expect prices to fall a lot more. It is questionable whether Asian economies will be able to decouple from the West's enormous debt problems. Especially given China reliance on exports.