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Heraeus Precious Appraisal

  • Edition 42 - 10 December 2018

Platinum is in the adoption zone

Palladium has traded at a premium to platinum since September 2017. Palladium’s premium jumped over $100/oz in the last week of November from $277/oz to $383/oz and is now over $400/oz. The palladium price is over $1,200/ oz, up 15% this year, and has even briefly overtaken gold. The last time palladium traded at a sustained premium to platinum was from January 2000 to January 2001. At that time, both palladium and platinum prices were rising and automotive demand for both was growing strongly too. This time the situation is slightly different.

Palladium has seen strong demand growth. Palladium’s main end-use in gasoline vehicle autocatalysts now accounts for around 80% of total demand, as its rising price has led to thrifting and a decline in industrial and dental use. In contrast, the platinum market has seen falling automotive demand, as the diesel market share in Western Europe has shrunk, and declining jewellery demand in China, its two largest end-use regions. However, platinum’s uses are more diversified than those of palladium. Jewellery and automotive demand are growing in other regions and industrial usage (~23% of demand) is also expanding.

The price discount to palladium has put platinum in the adoption zone. The palladium price spike in 2000/2001 resulted in lower palladium use in gasoline autocatalysts and caused a drop of two-thirds in electronics usage. Some automakers are again looking at putting more platinum into the catalyst formulations for gasoline vehicles and reducing palladium use. However, development and certification take time because the engines and catalysts have become increasingly complex as emissions standards have tightened.

Palladium lease rates have surged, indicating more market tightness. Years of deficit markets have drawn down stocks which are a third lower than in 2000, potentially making the higher price more sustainable. In the short term, the palladium price could move higher and continue to widen the premium to platinum, but in the medium term, the cure for high prices is high prices.

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