I expect that Palladium deficit will continue and support further growth of the prices. Some relief will come from higher recycling, which significantly increased in 2016, and should continue its growth in the next five years. Also Norilsk Nickel?s Global Palladium Fund will continue its activity, which will reduce Palladium on the market and increase the transparency of global stocks. In addition, I'm going to mention that further positive dynamics of the Palladium prices will be supported by healthy car sales and especially tightening of the emissions standards.
I believe that it is abnormal situation when Pd is more valuable than Pt. We've already see this in 2000/2001 and the result was drop of Pd price in 2001/2002 as autocatalyst producers substituted Pd for Pt. I think that the same scenario will repeat. Moreover, additional sanctions against Russia (the major Pd producer) may strengthen this process due to deficit increasing.
I am bullish on palladium. In middle term it is expected limited supply growth (mainly due to PGM Capex rationalization in South Africa) as well as demand grows significantly as platinum has been loosing its market share in autocatalysts to palladium. Moreover I believe that even in long term supply growth (mainly through recycling) will not be able to balance the market: (1) sustainable automotive production growth globally, (2) growth of hybrid vehicle market share worldwide, (2) growth of SUV market share and increase in engine size, (3) strengthening emissions legislation worldwide. One might also note that current situation on PGM market considerably differs from situation in 2001 (when Pd traded with premium to Pt) and that is why I do not expect palladium price drop: (1) sustained long-term market deficit (vs short-term market squeeze in 2001), (2) substitution Pt/Pd ratio >1:1 (vs 1:2 in 2001), (3) long-term track record of reliable supplies from Russia, etc.
In middle-term I expect that palladium price will remain high. The key thing is possible substitution palladium for platinum. On the one hand, such substitution is technically possible and one might think that catalyst manufactures have strong incentive for this as we see premium for palladium. However, on the other hand, I believe that this factor is weak to restore the status quo. First, catalyst manufacturers' incentive to do so is currently small: with an average loading of only 1/8th oz per vehicle, palladium would have to be quite a lot more expensive for platinum to offer a useful cost saving. Second, even if the decision is made, it would take time to effect, especially taking into account that all R&D departments are focusing on emission reduction and electrification. What about the long term, I think that we will see palladium price decreasing and that major factor will be car sales moderating in the key gasoline vehicle markets - China and the US.