By Peter Hobson and Arijit Bose
LONDON (Reuters) - Palladium prices are tipped for their highest year ever, forecast to average $1,200 an ounce in 2019 before falling back slightly in 2020, a Reuters poll showed on Tuesday.
A gaping supply shortfall has sent prices of the autocatalyst metal rocketing.
For the first time in 16 years, it is pricier than gold, and it has reversed its usual hierarchy with platinum - which the poll found would lag palladium as prices fall for an eighth straight year in 2019 before a modest comeback in 2020.
"The (palladium) supply deficit is here to stay, and the high level of prices as well," LBBW analyst Frank Schallenberger said.
But while the rally may not collapse, it will stall, the poll of 29 analysts and traders conducted this month showed.
The median forecast was for prices to average $1,200 an ounce this year and $1,150 in 2020 – up from $1,027 last year and only $612 in 2016, but beneath current prices around $1,350 and the record high of $1,434.50 reached earlier this month.
That means palladium will fall back behind gold, which a parallel Reuters poll forecast would average $1,305 an ounce this year and $1,350 in 2020.
(Graphic: ALLADIUM VS PLATINUM AND GOLD link: https://tmsnrt.rs/2Tjew6i).
Underpinning palladium is a supply shortage in the roughly 10 million ounces per year market estimated by researchers Refinitiv GFMS at more than 1 million ounces this year and next.
Another support is a switch from diesel to gasoline car engines since the "dieselgate" emissions scandal of 2015. Both palladium and platinum are used mainly in catalytic converters that reduce vehicle emissions, but palladium loadings are higher in gasoline engines.
A weakening car market could puncture the rally, however, especially if it prompts speculative investors who have helped drive prices higher to sell their positions, Standard Chartered analyst Suki Cooper said.
"The risk of profit-taking and slowing auto sales pose the largest downside risks," she said.
"We expect prices to correct lower before resuming their uptrend given the constructive fundamentals over the coming years."
Car sales in top market China fell last year for the first time in 30 years. Sales in the United States and Europe are weakening amid fears of a global economic slowdown.
Another risk is that carmakers switch palladium for cheaper platinum. There is little sign of this since palladium overtook its sister metal in late 2017, but a long-lasting price differential could eat into palladium demand, analysts said.
The median forecast in the poll was for platinum to average $856 an ounce this year - its eighth consecutive annual decline - but rise to average $900 in 2020.
Unlike palladium, the roughly 8 million ounces per year platinum market faces an ongoing supply surplus estimated by the World Platinum Investment Council at 455,000 ounces in 2019.
The metal, also used to make jewellery, is trading around $810 an ounce after hitting a 10-year low of $751.25 in August.
"Platinum will possibly recover from last year's weakness but fundamentals remain weak, the oversupply is still dominant," said Frederic Panizzutti at trading house MKS.
(Reporting by Peter Hobson; Editing by Veronica Brown and Dale Hudson)