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Heraeus Precious Appraisal

  • Edition 10 - 16th April 2018

Platinum:palladium ratio at a turning point?

There has been a cycle of around 10 years in the swings in the platinum:palladium ratio. Over a period of 11 years from 1990 to 2000 the ratio moved from a peak of 4.7 to 0.6. In nine years from 2000 to 2009 it went up to 5.3 and since then it has fallen to 0.9 over the last nine years, so it could be time for the trend to change once again and platinum become the favoured metal. The trend may not be as steep as the 2001-2003 move which was exaggerated by high levels of palladium speculation.

Palladium is trading at a premium to platinum for only the second time in over 40 years. Palladium last traded at a premium from December 1999 to September 2001. This followed a long period of globally expanding auto sales when palladium was increasingly in demand for gasoline autocatalysis. Palladium’s discount to platinum, concerns over future platinum supply and advancements in autocatalyst technology in the early 1990s led to its greater use as it was substituted for platinum.

The high palladium price in 2000/2001 saw this trend reverse with more platinum engineered back into gasoline autocatalysts and palladium use in electronics slashed (substitution in MLCCs), and the platinum price outperformed for most of the next 10 years as diesel car sales were boosted in Europe by favourable tax treatment.

However, after the financial crisis platinum suffered as the diesel share in Western Europe began to slip and palladium gained with rapidly expanding Chinese auto sales and recovering US light vehicle sales driving demand for gasoline cars. On top of which platinum jewellery demand in China dropped by over 500 koz in three years.

The ratio of total platinum demand to total palladium demand (excluding investment) is a useful indicator of the level of the platinum:palladium price ratio, and tends to lead changes in the ratio. Sentiment is very bearish on platinum but its diversified end-uses mean that it is not just reliant on autocatalyst use, and on this basis the demand ratio is projecting a shift in platinum’s favour despite diesel’s difficulties, suggesting palladium’s increasing price premium over platinum may also be ready to reverse.

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Precious Metals Update Archive 2017

  • Rhodium
  • Gold
  • Silver
  • Iridium
  • Palladium
  • Platinum
  • Ruthenium
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