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Heraeus Precious Appraisal

  • Edition 8 - 18 March 2019

How much lower can the Pt:Pd ratio go?

The platinum:palladium price ratio fell to 0.57 in February, its lowest level ever. The previous low point of 0.59 was reached in January 2001, which was the month that both metals’ prices peaked. There are similarities between 2000/01 and 2018/19, but also some clear differences. The similarities include economic expansions in the US nearing 10 years old, the Federal Reserve pausing in raising rates and stock prices retreating from record highs in the US and Europe.

In 2001, global palladium demand dropped and the price collapsed by 60%. This was the result of a combination of a recession in the US and the high palladium price in 2000 causing a huge drop in industrial demand. In Europe, 2000/01 saw the introduction of Euro 3 legislation which increased autocatalyst loadings. This, along with the lack of a recession and growing car sales, helped platinum demand to keep rising, but the platinum price still fell by 25% in 2001. Subsequently, automotive platinum demand rose relative to palladium as the diesel share increased in Europe, and the platinum price outperformed.

A major difference between 2000/01 and 2018/19 is the rise in Chinese car sales which have doubled in the last 10 years. This, along with the recovery in US auto sales after the last recession, an increase in the amount of palladium being used in diesel autocatalysts and the diesel share falling in Europe, resulted in the palladium price and demand outperforming platinum. Even with a slowdown in auto sales in China, the introduction of China 6 legislation is lifting palladium usage further.

Over the next few years the platinum:palladium ratio should continue to go lower as the palladium market remains tight and automakers remain committed to the metal. This is despite the hype of an imminent switch back to platinum which, even if it did occur, would take time. Nonetheless, a temporary palladium price correction could be near, particularly if a recession in Europe is forthcoming. Europe is now a palladium-rich, gasoline-dominated market after all.

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