LAWRIE WILLIAMS: Palladium price overhauls platinum
In July this year I wrote in these pages “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.” (See: Palladium closing gap on platinum – but neither great long term). Around ten and a half weeks later the ‘unthinkable’ has indeed happened with the palladium price first achieving price parity with its sibling pgm (platinum group metal) – for the first time in 16 years according to Commerzbank and then moving ahead by a few dollars. As I write platinum is quoted at $917 a troy ounce and palladium at $924.
In times past platinum was nearly always the highest priced of the principally traded precious metals, but was overhauled by gold – although not for the first time – in 2012 when gold was still running strong following its 2011 record prices, but platinum bounced back to its dominant position again until January 2015, ever since when it has closed below the gold price. Currently its discount to gold is around $370. When gold moved above platinum for the start of this long term run, palladium was priced at around $760 – a then still substantial discount to both gold and platinum.
The fundamentals for palladium have always looked particularly strong in recent years with demand substantially outstripping annual production, but the metal price largely disappointed until the current year when it has always been the best performing precious metal, having risen some 36% since the beginning of January. In comparison gold has only risen 11% year to date, silver 3% and platinum has actually fallen in price by 1% (all in US Dollar terms).
Will palladium continue its upwards path? In the short term perhaps – at its current price growth rate it could hit $1,000 an ounce by the year end. Its principal usage is in autocatalysts for petrol (gasoline) powered internal combustion engines, but its growth in this sector was largely as a replacement for platinum in such catalysts given its then much lower price. Now that the price differential may even reverse further there is a possibility the auto industry may start to switch back to platinum catalysts for petrol engines – platinum is still the preferred catalyst for diesel engines, but the latter are falling out of favour because of harmful pollutant worries which has meant falling demand for platinum and is a significant factor in its poor price performance of late.
However such changes would take time and the biggest threat to both palladium and platinum demand is the seemingly inexorable growth in demand for electric driven vehicles (EVs) which looks to be likely to beat all prior growth estimates by the end of the decade. With cities talking of implementing bans on vehicle access for internal combustion (IC) engine vehicles and auto manufacturers beginning to switch to EVs as their principal products, and with battery technology increasing in leaps and bounds, there could be a huge dent in IC driven vehicle demand within the next decade. This is bound to result in reduced autocatalyst demand in the medium to long term which will likely impact palladium and platinum prices adversely – although perhaps not until the 2020s.