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LAWRIE WILLIAMS: Palladium closing gap on platinum – but neither great long term

The unthinkable is happening.  Palladium is closing the price gap with platinum – fast.  Indeed the way things are going the palladium price could surpass that of platinum within the next few days or weeks.

Today, according to the latest data from kitco com, palladium is trading at about $836 and is trending upwards while platinum is at $895 and trending downwards.  A year ago, palladium (which is by far the best performing precious metal year to date) was at around $610 - while platinum was at $1100 and moving higher at the time.  Thus a $490 price difference has fallen to a mere $59 in a year – and platinum seems to be in a continuing decline.  Historically platinum has mostly traded higher than gold but since it slipped below the yellow metal the gold:platinum ratio is now a large 1.35, while palladium’s fortunes have soared due to a perceived severe supply deficit..

Platinum’s heyday was in the early days of its determination as the best catalyst for removing noxious emissions from automobile exhausts – both for petrol (gasoline) engines and diesel engines, but palladium, largely because of its much lower price (about half that of platinum), gradually superseded its more expensive metal sibling as an exhaust catalyst for the then dominant petrol engine, while platinum retained its place for diesel exhaust emission control proving to be more effective in this respect.  But diesel engines are currently out of favour, following the VW emissions testing 'cheating' scandal and various reports suggesting diesel emissions are a major health risk.  With the metals prices now close might we see a return to platinum as the dominant petrol engine catalyst too?  Probably not – at least for some time – but it is likely to bring a halt to any research to replace platinum with palladium as the predominant diesel exhaust emissions control catalyst.

But such speculation is becoming irrelevant as the trend towards electric vehicles is moving far faster than earlier estimates had been suggesting as battery performance, and vehicle range, improves. Elon Musk’s Tesla - which is probably the key driving force here despite doubts over its financial position and sky-high stock price - has at last started to roll out its ‘affordable’ Model 3 and is planning to ramp up to produce 20,000 electric vehicles a month by the end of the year, and higher in 2018, which would make it one of the world’s largest carmakers.  But regardless of Tesla’s likely performance, which is currently looking to start more slowly than originally forecast, virtually every major carmaker is also planning on being a significant producer of electric vehicles by the end of the decade.  Indeed Volvo has already said it will ONLY produce electric and hybrid vehicles by 2019, while all the other top European, Japanese and Chinese auto manufacturers are investing heavily in electric vehicle and battery production.  Many of the new vehicles planned for production have claimed 200 mile ranges and up, and this is only likely to improve.  While electric and hybrid vehicles are currently more expensive than internal combustion engine vehicles, as production increases costs will come down, while maintenance costs, and mileage costs will end up well below those of conventional internal combustion (IC) vehicles.

What the above indicates is that the percentage of conventional vehicle sales is set for an accelerating downwards trend for the foreseeable future and with that autocatalyst demand – the principal market for platinum and palladium – will fall accordingly.  There may yet be a few more years of good demand for pgms but long term usage is likely to fall off a cliff by the end of the next decade.  The internal combustion engine may not disappear altogether, but it is increasingly being made unwelcome in major urban areas in terms of low emission zones and outright bans – so don’t view pgms as a secure long term investment like gold.  They are set for a long decline which will become more and more apparent as time progresses unless significant new uses are found for them.  No doubt researchers are working on this, but don’t hold your breath.

11 Jul 2017

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

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