LAWRIE WILLIAMS: Palladium’s big premium over platinum may prompt reverse substitution
As I write the palladium price is carrying a $650 an ounce premium over platinum, a metal which has historically been the more expensive of the more plentiful of the platinum group metals (pgms). It is also at around a $130 premium over gold. If one looks back only a relatively short time, when platinum was at a strong premium over its sister metal, this prompted major, and ultimately successful, research by exhaust catalyst suppliers into utilising the lower cost pgm as the principal exhaust emission control catalyst for use with internal combustion engines. After a couple of years palladium won that battle with respect to petrol (gasoline) powered engines, although platinum has continued to dominate in diesel engine exhaust emission control catalytic converters.
But, if the big palladium price premium over platinum is seen as likely to be maintained in the medium to long term there has to be a strong chance that the reverse will begin to take place. Arguably the current palladium/rhodium exhaust catalyst combination has proven to be more efficient than platinum, but that is probably due to the continuing level of research. If this level of research is put into platinum as a petrol engine exhaust catalyst - it has already proven to be reasonably effective as such, whereas palladium had not when substitution research began - it could well usurp the position currently held by palladium. We suspect that such research has already begun and may accelerate if the palladium price starts to power further ahead.
Currently global platinum production is in surplus and palladium in deficit, which is partly responsible at least for the reversal in the pricing position between the two sister metals. It has been exacerbated by a reduction in demand for light diesel powered vehicles due to pollution concerns while demand for petrol aspirated engines has, until recently, held up fairly well. But, and it is a big but, car buying demand has turned down in the principal global markets over the past few months, while there is an ever-growing market for electric powered cars- small but rising - and this is likely to accelerate.
All the above will take time, apart from the turndown in global auto demand, but over a two to three year period the current strong fundamentals for palladium may well fall away. Even so, we feel that the current sizes of the price premia over gold and platinum are overdone and there is certainly a good chance that the gold price will exceed that of palladium again during the current year due to a continuing gold price rise and a contraction in that of palladium.
19 Feb 2019