Palladium rallied to a 16-year high this week and may rise even further, industry participants said, as consumers replaced vehicles damaged by hurricanes in the United States and on rising auto sales in China.
Hurricane Harvey destroyed up to half a million cars when it deluged the U.S. state of Texas in August. Two weeks later, Hurricane Irma slammed into Florida, adding another 200,000 vehicles to the year's storm toll, according to auto industry estimates.
Demand for cars drives demand for palladium, because the principal use for the metal is in catalytic converters that reduce pollution from gasoline-fueled engines.
Strong demand is likely to continue for months as consumers replace vehicles lost to the storm, so palladium may rally further, said Dan Pavilonis, senior market strategist at RJO Futures in Chicago.
Palladium touched a high of $1,010.50 per ounce on Monday, the highest level since 2001. The metal gave up some ground on Tuesday to trade at $971.15 an ounce. Last month, palladium prices rose above platinum for the first time since 2001.
"Palladium is technically a strong market and experiencing demand, but not just from autos," Pavilonis said. Funds were among those buying the metal, he added.
U.S. new vehicle sales rose in September, the first monthly gains in 2017. The value of receipts at auto dealerships rose by the highest level in 2.5 years, contributing to a surge in overall U.S. retail sales.
Last month's auto sales in the Houston area, which suffered extensive flooding, rose 109 per cent in September over August 2017, and lead Texas to a 34 per cent jump for the same time period, according to automobile sales website Edmunds.com.
Strong sales are expected to continue for several months as consumers receive insurance payouts and replace vehicles damaged in the storms, said Jessica Caldwell, senior analyst at Edmunds.
In China, the world's largest vehicle market, sales in September rose 5.7 per cent on the year and were up 4.5 per cent in the first nine months of 2017.
In Europe, gasoline-fueled cars are also getting a boost from a shift away from diesel-fueled vehicles after the scandal involving Volkswagen. The manufacturer underestimated emissions from its diesel vehicles.
A stronger global economy and overall positive consumer sentiment are driving the automotive industry worldwide, said Charlie Chesbrough, senior economist at Cox Automotive.
"For the first time in five years, we have all five major economies going in a positive direction," which boosted interest in vehicles, Chesbrough said.