LAWRIE WILLIAMS: Palladium and Rhodium prices soar on strong fundamentals

Palladium plus a very small amount of rhodium are the principal catalytic metals nowadays for use in petrol (gasoline) fuelled internal combustion engine exhaust anti-pollution systems and both are suffering from supply shortages which have been boosting prices.  Indeed palladium keeps hitting new highs and is heading up towards double the price of platinum which used to be far more expensive than the former and was, some years ago, itself the primary catalyst in petrol engine exhaust cleaning systems.  Palladium used also to be far less costly than gold, but currently command a premium of over 205 above the yellow metal.

When platinum was far more expensive than palladium this led to the research which saw platinum replaced by palladium as the dominant catalyst in exhaust emission controls for petrol engines.  Thus we have to ask is it now possible that the reverse will occur and the auto industry generate a switch back to platinum as the principal catalyst in emission controls for both diesel engines (where it is still dominant) and for petrol engines too?

If the auto industry and catalytic exhaust system manufacturers see the current price differential as persisting we think there is a good chance that this could happen given the platinum market remains in substantial surplus and palladium and rhodium in deficit.  But if this does happen it will take time for the catalyst manufacturers to prove up a replacement system and switch over.  Probably a couple of years at least, over which time the catalyst manufacturers would have to make a judgement call that the pricing parameters for the two metals won’t reverse yet again.  Historically platinum has commanded a good price premium over palladium and there’s obviously no guarantee that this will not re-occur at some stage in the future.

The principal difference now is that it is already known that platinum-base catalysts work as  being ieffective in cleaning pollutants from petrol engine exhausts whereas prior to its substitution with palladium the latter’s catalytic properties in the process were, to a major extent, unknown, so much basic research had to be undertaken before the switch was made.  Arguably, since then, continuing use and research has meant that the palladium/rhodium catalyst combination is more efficient at cleaning petrol engine exhausts than the old platinum catalysts.  But if a similar amount of research is put into regeneration of platinum as a petrol engine exhaust catalyst, perhaps in combination with rhodium or some other metal, there has to be a reasonable possibility that platinum could again become the dominant catalytic metal for all types of internal combustion engine.

Should the above occur then the big platinum surpluses could soon disappear and the palladium deficit be reduced or eliminated altogether, but then the price differences between the two metals could fall away, or be reversed, which represents a balancing act equation for the catalyst and auto manufacturers to take into account.  The longer palladium maintains the current kind of substantial price premium over platinum, the more this reverse substitution process is likely to come about.

The writer’s view is that probably the research to see if platinum-based exhaust control catalysts are capable of meeting today’s more rigorous anti-pollution standards will already be under way.  But, because of the potential for the pricing differential between platinum and palladium to be eliminated, or reversed the likelihood is that there may well be a place for both metals in future catalytic systems for petrol driven internal combustion engines which could bring prices back nearer equality – positive for platinum and negative for palladium.

Precious metals consultancy, Metals Focus, certainly sees the strength in the palladium price continuing this year and sees it overtaking $1,700.  Indeed it is already getting close reaching over $1,600 at one time yesterday. It sees potential supply disruption ahead for all the pgms in the world’s largest producer, South Africa, which dominates platinum production and is probably the second largest producer of palladium after Russia  The consultancy thus notes, in its latest weekly newsletter:  With regard to the 2019 price outlook, we therefore expect palladium to generate further upside, surpassing $1,700 before year-end. On the supply side, risks of industrial action in South Africa (as wage negotiations get underway in the PGM market) are likely to have a far greater impact in the palladium market, compared with platinum. With respect to palladium demand, relatively weak Chinese light vehicle sales will be offset by tighter emissions legislation, resulting in a new high for global palladium automotive demand.

Russia has added to the supply worries as it is reported as saying that it will stop the export of precious metals scrap and tailings from May to September this year. Given that palladium and rhodium supplies appear to be in deficit, this decision will affect the prices of these two metals the most.

Overhanging all this, though, will be the growth in the uptake of electric, hybrid electric/petrol and fuel cell vehicles which is perhaps advancing faster than analysts have been anticipating.  This growth is likely to accelerate with more and more countries and cities planning to ban sales of, or access by, internal combustion engine cars at some point in the future and as ever-continuing research expands electric vehicle (EV) battery life, speeds up charging and leads to more and more charging points becoming available thus eliminating, or substantially reducing, range anxiety.  Virtually all major car manufacturers are developing electric vehicles and it may not be long before these dominate the new vehicle markets as greener credentials become the norm rather than the exception.  At this point the price differential between platinum and palladium will become an irrelevance unless new uses can be found for the metals and the prices for both metals could be decimated.  This may not occur for some years yet, but we wouldn’t like to bet on the ultra long term survival of the internal combustion engine as the principal power unit for land-based transportation systems.

20 Mar 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