Palladium topped $1 600 an ounce for the first time, and there's little sign of the rally slowing as global supply tightens.
The price of the metal - mainly used in autocatalysts in gasoline vehicles - has almost doubled from a recent low in August. Demand has remained robust as manufacturers scramble to get hold of palladium to meet more stringent emissions controls, particularly in China, even as auto sales in key markets slow.
With the palladium market expected to be in deficit for an eighth year, speculators have piled back in, and a robust borrowing market for the metal prompted investors to pull supplies from exchange-traded funds and lease them out. Fiat Chrysler's recent recall of about 863 000 vehicles that violate US standards could spur even more demand.
"Metal for immediate delivery remains in extremely short supply," said Jonathan Butler, precious metal strategist at Mitsubishi. "The short-term supply outlook doesn't look any better, particularly in South Africa. Automakers are still finding ways to thrift but it's getting more difficult with ever stricter emissions targets."
The metal's rally is even stirring debate about whether automakers can make the switch to cheaper platinum to help control their costs.
"We remain bullish on palladium since the physical palladium market remains tight and it will take years to substitute," analysts at Citigroup said in a March 19 report. "However, at these higher prices we are acknowledging the increase in downside risks relating to potential substitution headlines."
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Palladium climbed as much as 1.4% to $1 601.52 an ounce, and has increased 26% this year. Bank of America Merrill Lynch earlier this month raised its average forecast for 2019 to $1 800, suggesting that prices could surge as high as $2 000.
Palladium's jump has revitalised producers. Impala Platinum, which has slashed its net debt, plans to start building a new palladium mine that could begin producing as soon as 2024. Anglo American Platinum is studying plans to boost palladium output by 270 000 ounces a year through expansion of its flagship Mogalakwena mine.
More than 80% of palladium comes as a byproduct from nickel mining in Russia and platinum mining in South Africa, so supplies depend on the extraction level in other minerals. The viability of platinum as a substitute has also been downplayed. Research has shown that technological advances are needed before it can match the performance of palladium-based catalytic converters, according to Johnson Matthey Plc, which makes the devices.