A strong rebound in Chinese car sales is helping to widen the price gap between palladium prices —already the most expensive of the major precious metals—and its sister metal platinum.
This year, palladium prices have jumped 27% to $2,404 a troy ounce, while platinum has only recently returned to pre-pandemic levels of $979 an ounce.
As key ingredients in catalytic converters, both metals are at the forefront of global efforts to reduce the harmful emissions from car exhausts. But the price of platinum, which is used in diesel-engine catalytic converters, has stagnated as those cars have lost ground to gasoline-powered automobiles, which use palladium.
That trend is intensifying as China’s gasoline-dominated auto markets rebound, while Europe’s diesel-heavy car sector struggles amid rising new coronavirus cases and lockdowns, analysts said.
Chinese passenger car sales grew at the fastest pace in more than two years in August, according to the China Passenger Car Association, an industry group. However, in Europe, car sales fell 17.6% in August from a year earlier and were down by almost a third across the first eight months of 2020, according to data from the European Automobile Manufacturers’ Association covering the European Union, the U.K. and the European Free Trade Association states.
Diesel-engine cars once made up almost 50% of Europe’s auto sales, providing a strong source of demand for platinum for catalytic converters as the EU tightened legislation to reduce emissions.
But the dieselgate scandal, in which Volkswagen AG admitted to disguising how much harmful emissions their cars were producing, along with the steady growth of electric vehicles, has nibbled away at diesel’s market share.
Platinum is also used in jewelry, but demand has weakened as Asian consumers, who make up the largest market, have cut back on luxury items amid the pandemic.
“The switch from diesel to petrol, the rise of electric vehicles, platinum jewelry not being bought—it all looks quite negative for platinum,” said Kirill Kirilenko, a senior analyst covering precious metals at consulting firm CRU.
Despite mine closures in South Africa taking a big chunk out of platinum supply, Heraeus Group, a precious metals trading and refining company, still expects a surplus of one million ounces this year when excluding investment demand, which accounts for about 15% of total demand.
The World Platinum Investment Council, which is funded by platinum miners, forecasts a market deficit of 336,000 ounces in 2020 when including investor demand.
“Any surplus is being absorbed by financial investors. ETFs, in particular, have seen some good inflows because there is a feeling that platinum is cheap when compared to other precious metals,” said Hans-Günter Ritter, head of trading at Heraeus.
Car companies used to use platinum in all autocatalysts, but substituted it with palladium in gasoline cars over a decade ago because it was cheaper. As prices have switched and palladium is in short supply, the platinum industry is hoping auto companies switch back to platinum.
“The unavailability of palladium is an issue and that’s why I believe that substitution is already happening,” said Trevor Raymond, director of research at the WPIC. “The ‘V-shaped’ recovery in auto sales we are seeing makes substitution more likely.”
Over 80% of palladium is used in auto catalysts. That focus is what has allowed the metal to ride the wave of tightening emissions standards. But analysts warn it is also what makes prices vulnerable as electric vehicles gradually replace petroleum-powered cars.
“In the long run, we are probably witnessing the zenith of the palladium market,” said Mr. Kirilenko at CRU. “It’s at its peak now but unless there is a new application other than autocatalysts, it will eventually just die out.”
Read More :
