A record 22% slump in China’s January car sales is threatening to derail the rally in palladium, used to curb emissions from vehicles.
The precious metal generated a 59% return for investors last year, the most of any commodity tracked by a DCI BNP Paribas gauge. The rally was fueled by expectations that stricter Chinese environmental standards will spur higher loadings of the material in cars. The bullish sentiment is wavering, with hedge funds paring their bets on higher prices to an eight-month low.
On Thursday, the China Passenger Car Association predicted a worsening outlook for the industry, saying sales may drop more than 30% in February. “Suspended operations could create a short-term bottleneck and a temporary dip in demand” for palladium, Suki Cooper, precious metals analyst at Standard Chartered Bank, said. “The key question will be how deeply auto sales are impacted thereafter.”