Stricter emissions control in China to drive palladium prices higher

Tight supply and stricter vehicle pollution control standards on the mainland will continue to be key drivers of higher prices of palladium this year and next year, even as the industrial metal's price reached a 13-year peak, analysts say.

The introduction of the stringent National IV vehicle emissions standard and Beijing's order last month to take pollution-prone pre-National III "yellow-label" vehicles nationwide off the road this year will drive up demand for new cars.

Emissions of pollutants are cut by 30 per cent or more when the standard is raised from III to IV and from IV to V.

Palladium, platinum and rhodium are used in catalytic converters attached to vehicles' exhaust systems to turn toxic pollutants into less harmful substances.

The price of palladium, already the best-performing metal last year, will likely be pushed higher by tight supplies, a Bank of America Merrill Lynch report said.

A five-month miners' strike that ended late last month in South Africa, a major palladium producer, resulted in the loss of about a quarter of the annual output of the metal and has largely depleted producers' stock, the report said.