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LAWRIE WILLIAMS: Palladium powers towards $1,000

Ever since the palladium price moved above that of platinum analysts have been almost falling over each other to preach that the status quo would be restored and that the platinum price would rapidly become dominant again.  Indeed on a few days the platinum price did indeed move back above its sister metal, and on others achieved parity.  But nolw there seems to have been another surge in the palladium price which looks to be headed towards $1,000 and above while platinum languishes in the low $900s.  With the gold price seemingly strengthening and likely to take another tilt at breaching the $1,300 level despite the fact that the Fed now seems likely to implement another 25 basis point rise in U.S. interest rates in December, the whole precious metals sector is currently looking a little stronger and palladium, easily the best performing metal in the complex so far this year, could well see further rises and it wouldn’t take much to push it through the $1,000 level.

Palladium last hit the $1,000 level in a short-lived spike back in January 2001 and rapidly came crashing back down again to well below $200 in a couple of years, but this time around the supply/demand fundamentals are particularly strong in palladium’s favour and could remain so for the next couple of years unless any continuing price advantage over platinum brings substitution by the latter in the auto catalyst market into play.  Platinum catalysts can be relatively easily substituted for palladium ones for petrol (gasoline) driven internal combustion engines, but whether any price advantage is high enough, or sustained long enough, to prompt the change remains to be seen.

Palladium supply remains in a substantial deficit.  Russia is the biggest source of supply, followed by South Africa where platinum from the Bushveld Complex’s Merensky Reef mines is the dominant metal.  However things are changing there with the UG2 Reef, which has a higher palladium content, becoming more prevalent as a pgm supply source.  Also the big potential bulk mining prospects in the north Bushveld alos have a higher palladium content than the traditional Merensky Reef mines, so thbe production balance is changing – but only over time. 

There are some primary palladium mines elsewhere – notably Stillwater in the USA which should benefit strongly from high palladium prices making Sibanye’s purchase look particularly astute – but these operations do not produce enough to alter the supply/demand balance in the short to medium term.

Investment in new palladium production may also be muted by the likely growth in all-electric and fuel cell driven vehicles which will ultimately put a big dent in the autocatalyst market, currently dominated by palladium.  But this won’t happen for a few years yet, but longer term the future for palladium demand looks shaky.

So palladium may yet have a couple of years in the sun with the prospect of even higher prices  ahead given its likely continuing severe supply deficits unless (or maybe until) any price differential with platinum pushes autocatalyst manufacturers to revert to platinum catalysts.  (Incidentally this did happen last time the palladium price moved above platinum.)  The bank analysts predicting otherwise could well be wrong in their forecasts for platinum to return to price dominance over its sibling metal, at least for a couple of years until the supply balance is redressed.

13 Oct 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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