LAWRIE WILLIAMS: Palladium 2x platinum price. How long can that be sustained?

The big story in precious metals over the past couple of years has been the inexorable rise of the palladium price.  Last week it closed at $1,915 – more than two times the level attained by its big brother – platinum – which settled at a mere $926.  This year it has powered past gold and is now comfortably the highest priced of the more common precious metals,

Palladium fundamentals are strong, and remain so, with it being in a supply deficit and it has been heading in that positive price direction ever since it superseded platinum as the principal primary exhaust emission control catalyst for petrol (gasoline) driven internal combustion engines. But is there a cautionary tale here?  The reason palladium became the exhaust emissions catalyst of choice for petrol engines is that it was hugely less expensive than platinum – the previous holder of that position - which led to considerable research into the metal as a potential emissions catalyst.  Might the current price differential lead to a return of the platinum-based emission control catalyst to replace palladium?

We have raised this question beforehand and certainly there is undoubtedly research already under way into platinum replacing palladium as an exhaust catalyst and regaining its No. 1 position – it is still the preferred catalyst in diesel engine exhaust control systems.  With the rise in electric powered vehicles already under way, any way of reducing the costs of producing ‘clean’ internal combustion engine light vehicles will undoubtedly be a priority at motor manufacturers.  Thus a return to platinum-based exhaust emissions control catalysts given the now massive price difference between the two metals, will offer an important cost-cutting option.

Obviously there will be a trade-off here.  A rise in platinum usage and a fall in that of palladium could rapidly reduce the price differential between the two metals.  Up until now perhaps the potential price advantage of platinum over palladium has not been sufficient to warrant an enforced change, but the chances are that while the supply deficit for palladium remains in place its price will continue to rise faster than that for platinum and a breach of the $2,000 level seems likely to occur before platinum regains $1,000.

But what might well tip the balance in favour of a platinum resurgence as a petrol engine exhaust system catalyst could be because palladium becomes unavailable at any price due to the supply shortage.  Motor manufacturers will need to have catalytic converters available to meet ever tighter emissions control legislation, or their products will not be allowed on the roads.  This will mean that motor suppliers will already be researching other emissions control options and, to use a motor racing analogy, platinum will definitely be in pole position in this respect.

Because any change back from a palladium-based catalyst to a platinum one cannot happen overnight there’s probably a bit of life left in the palladium price yet left.  But the higher it goes the more the urgency for a replacement will become.  We suspect the net result will be that a return of platinum as an exhaust emissions control catalyst for petrol engines will happen, but that platinum-based and palladium-based catalytic converters will co-exist and the prices of the two metals will move into balance.  This will probably mean the platinum price will rise and that of palladium will fall, although the latter may not happen for a year or more.  But longer term, platinum probably has the stronger upside potential unless, of course, research unveils a cheaper alternative catalyst – gold or silver maybe?  Longer term still palladium will likely suffer more than platinum from the inexorable rise of another kind of substitution – zero polluting electric vehicles replacing internal combustion engine driven ones.  This will happen, but the internal combustion engine almost certainly still has many years of life yet before it is completely superseded by an electric alternative!

15 Dec 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com