Saturday, 26 October 2019

Palladium at almost twice the price of Platinum

By mid October it looked as if Palladium was rallying to twice the price of Platinum, with the price ratio hitting 1.974 at the Comex close on 16 Oct. Less than 2% to go ... Eventually it didn't happen.

Amidst all adversity, Platinum rallied $40 from its low (with Pd essentially flat) driving the Pd:Pt ratio down to 1.894 on 25 Oct: not quite out of the danger zone yet. On the contrary: as soon as Palladium resumes its uptrend, we may need skipping 'almost' in the article title within a few days.

An anomaly turning to the 'new normal'

Prior to 2017, Platinum nearly always was quoting a lot higher than did Palladium. Nearly always, because there has been one prior anomaly in the beginning of the 21st century.
For more details read "Is a palladium-platinum price inversion in the cards?" 
During the winter months early 2001 palladium spiked near $1100/Oz while Platinum 'only' rose to about $630. By summer that year, Palladium and Platinum were back to parity, with Pd sliding further as the year advanced.

Platinum, Palladium in USD/Oz on the left axis - Ratio on the right axis (click to enlarge)

On 27 Sept 2017 Platinum and Palladium reached parity for the first time since summer 2001. By end 2017 the ratio had risen to 1.13, yet it didn't hold up. Platinum and Palladium were back to parity on 7 Feb 2018. The price inversion seemed to have been meek and short lived as compared to 2001.
The Palladium price effectively slid from over $1100/Oz by mid Jan 2018 to less than $900/Oz during a few days in July and August. Yet in autumn 2018, Palladium started rallying again without looking back. In December $1200 was reached (above the 2001 peak); January 2019 brought Palladium to $1300/Oz. In February the Palladium rally accelerated finishing the month above $1500/Oz. A pause in the uptrend briefly brought Palladium back below $1300/Oz in May 2019. It has been off to the races again lately, with the February peak surpassed and Palladium reaching $1759/Oz on 24 Oct.

Market tendencies

Initially the Pt-Pd price inversion had been driven by speculation on Palladium, which is the main precious metal used for catalytic converters in regular gasoline engines.
From 2017 onward, diesel engines were rapidly falling out of favour as the exhaust fumes were found out to be much more loaded with toxic nitrogen compounds and soot particles than what test reports had been suggesting. Diesel engines require catalytic converters using mainly platinum as active material. Though the platinum use for catalytic converters only amounts to 40% of its total industrial use, the impact has been huge.
The use of Palladium has been rising, leading to a market shortfall in 2018. No less than 85% of the global Palladium production is used in catalytic converters. Even production volume reductions among major car manufacturers in 2019 didn't curb the trend yet. More palladium is used to make new cars compliant with severe environmental requirements put forward by new legislation worldwide. Only a massive switch to electric vehicles is eventually going to reduce the need for Palladium. Whereas in a few North-European countries, the fleet of electric vehicles is rapidly expanding, on the worldwide market we aren't there yet.

1 comment:

  1. Palladium has been quoting at more than twice the Platinum price since Nov 26, 2019. The price comparisons made are COMEX fix, bid prices for both precious metals. On Dec 5, the Pd:Pt price ratio has hiked to 2.073