LAWRIE WILLIAMS: Palladium outperforming platinum – but for how long?
This morning, as I write, the palladium price is sitting at $1,024 an ounce, aided by a small fall in the dollar index following on from the latest statements from the U.S. Fed and the ECB, while platinum was at only $882 an ounce. This is a massive deficit of almost 14% for the platinum group metal (pgm) which has for most of time been at a substantial premium over the former.
But can palladium’s price advantage be sustained? The answer is almost certainly not in the medium to long term – while in the ultra long term the future for all the platinum group metals looks pretty bleak given the likely rise in Electric Vehicles (EVs) sales and a matching decline in Internal Combustion Engine (ICE) driven units.
The principal usage these days for palladium and platinum is as a catalyst in ICE exhaust emission control systems. Platinum remains predominant in the diesel emissions control market, but diesel, in the car market has had a bad press and sales have been slipping, particularly in Europe and Asia, while it has never really taken off in the big U.S. automobile market.
Over time the then high price premium of platinum (once the preferred emissions control catalyst for all kinds of ICE driven vehicles) over palladium has led to the development of what was then far cheaper palladium/rhodium emissions control catalytic exhaust control system for the predominant petrol (gasoline) driven car market. But how long can this last with palladium and rhodium commanding the premium price slot?
It is true that palladium demand appears to be in a substantial deficit at the moment, thus accounting for the rapid price advance for palladium which as risen in price by some 40% this year. However a switch back by manufacturers to what appears to be a marginally more efficient platinum-based catalytic converter system, which would be currently considerably less costly given comparative pgm prices, could well mean that platinum demand will rise and palladium will fall. This will take time, but the longer palladium remains at a price premium over platinum the bigger the incentive to switch back to a platinum-based catalyst system. Gearing up to a reverse switch of this type could happen far more quickly than is currently anticipated given the manufacturers of emission control catalytic systems are already producing platinum based systems for the diesel market.
The global ICE-driven vehicle market is enormous, and likely to remain so until early in the next decade at least, despite an increasing take up of EVs. This will not happen overnight and ICE-driven cars are expected to dominate the auto market for at least the next ten years, although beyond that we see EVs becoming dominant and demand for platinum, palladium and rhodium slipping away – drastically as the trend to EVs continues. But that still leaves a good few years when pgms will remain dominant in the sector – but which ones?
There is also perhaps a better correlation between platinum and gold prices, with increases in the latter tending to drive similar increases in the former. Historically the platinum price has been higher than that of gold most of the time, and some analysts suggest that that price premium could re-appear – although this writer would disagree with that argument given the potential long term decline in pgm demand noted above. But if the gold price does rise over the next few years, as we anticipate, it seems more likely to drag platinum up with it than palladium, given the stronger jewellery demand for the former. But then if platinum again becomes more expensive than palladium we could see the exhaust catalyst demand switch around yet again, assuming the current price differential does lead to perhaps a temporary platinum demand dominance again. But this may all happen too late for the ultra-long term futures for either metal. They will both suffer from what we see as the inevitable rise of the EV in the personal transportation sector – and ultimately in the heavy truck sector too, although this may be slower to come about.