* Palladium outstrips rally in gold, platinum, copper
* GRAPHIC-2017 metal returns: tmsnrt.rs/2eqHKkL
* GRAPHIC-China auto production: reut.rs/2iTtwWO
By Jan Harvey
LONDON, Jan 6 Palladium has soared away from its
peers this week on bets that the autocatalyst metal, sold down
at the end of last year, will benefit if tax cuts and higher
government spending in the major car markets of China and the
United States boost auto sales.
The metal, mainly mined in Russia and South Africa and
bought by carmakers for use in emission-controlling catalytic
converters, has risen nearly 10 percent this week, outstripping
gains in gold, copper, and even its sister metal platinum,
itself up 7 percent.
While this in part reflects a correction in the market after
a bout of fund selling drove prices lower in late December,
prices are buoyant after climbing by more than a fifth last
year, their biggest annual rise since 2010.
"(The) main driver for the solid performance is that
palladium has the best fundamentals within precious metals,"
Giovanni Staunovo, commodities analyst with UBS Wealth
"With supply stalling and demand rising, driven by strong
car sales in the U.S. and China, 2017 is likely to be the sixth
consecutive deficit year."
Investors appear to be responding to that story. The recent
price move is likely to have been driven by positioning in NYMEX
palladium futures, analysts said, while palladium
exchange-traded funds, which saw huge outflows last year,
reported their first inflows in a month on Thursday.
Donald Trump's victory in the U.S. presidential election in
November sparked a rally in industrial metals on his commitment
to lower taxes and increase spending.
U.S. new car and truck sales had already hit record levels
in 2016, with strong consumer confidence and relatively low fuel
prices boosting the industry's outlook.
"Although a few months ago we were conscious that sales may
be topping out, the incoming Trump administration may change
that," Mitsubishi analyst Jonathan Butler told the Reuters
Global Gold Forum on Thursday.
"The president-elect's plans for tax cuts and fiscal
stimulus should improve consumer confidence and may increase
consumer spending on big-ticket items such as cars."
Commodity markets are also reflecting hopes for increased
government spending in China, the world's biggest consumer of
industrial metals. Like the United States, China is a big buyer
of gasoline-fuelled cars.
Catalysts in gasoline-powered vehicles use a higher amount
of palladium than diesel cars, favoured in Europe, which contain
Global automakers, such as General Motors, recorded
stronger-than-expected sales last year in China.
Some commentators caution though that the metal's rise may
run out of steam if expectations for reflationary policies, such
as tax cuts and higher government spending, do not translate
into higher demand.
"Reflation is positive for commodities, but palladium,
although it is sensitive to global economic conditions, has
quite a specific demand source -- cars," Macquarie analyst
Matthew Turner said. "Just because the economy is doing better,
it doesn't mean to say car sales will. That's why we think there
could be some weakness to come."
(Reporting by Jan Harvey; editing by Susan Thomas)