Palladium Surges Again But The Focus Will Soon Shift To Platinum

Singapore (Jan 19)  The palladium boom which has led to a surge in the theft of hybrid electric cars continues to accelerate with the precious metal up 25% over the past two weeks to more than $2,500 an ounce, sparking a burst of interest in palladium’s twin; platinum.

At its current price, palladium is close to double where it was at this time last year, driven up by demand from car makers, who use it to remove noxious gases from vehicle exhausts, and increasingly from speculators, too.

Platinum To Play Catch-Up

Whatever the cause, there are early signs emerging of platinum playing catch-up with palladium as car makers are forced to switch, not just because of the palladium price but also because of a worldwide shortage.

Russian palladium ingot

Russian palladium ingot at the JSC Krastsvetmet non-ferrous metals plant in Krasnoyarsk.

Andrey Rudakov/Bloomberg

The twin metals, which are often found together in the same ore bodies, are sourced largely from South Africa and Russia which means supplies can be erratic.

Rhodium, a third metal which shares a geological connection with palladium and platinum, but is in much shorter supply, has been the real star of the show, trading last week at more than $7,000/oz, up by 30% over five trading days.

 

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The pace at which the three metals have risen has taken metal traders and consumers, especially those in the vehicle and jewelry trades, by surprise.

The Appeal Of A Prius Gets Stronger

It was little more than a month ago that I reported on palladium heading for $2,000/oz in a story which recommended, part ironically, that owners of Prius hybrid electric cars should lock them up because of their thick coating of palladium on the exhaust which had made them a prime target of car thieves.

The price surge above $2,500/oz makes a Prius, and other hybrid electric cars, even more attractive and could even mean that the exhaust system in some older conventional vehicles are worth more than the vehicle itself.

What’s driving palladium, platinum and rhodium started as a case of genuine shortage because all three have been in supply-deficit for several years as ore bodies get deeper and more expensive to mine or, in the case of South Africa, a breakdown in the country’s electricity grid means deeper mines cannot be worked safely.

Stillwater platinum mine

Extracting ore 3,250 feet below the surface at the Stillwater platinum mine in Montana.

Chip Chipman/Bloomberg News

But what happens next could be even more interesting because a switch by car makers who cannot source the palladium they prefer for scrubbing the gases produced by gasoline motors will see them shift to platinum which is the preferred metal for diesel engines.

Switching between metals has occurred in the past when the price gap gets too wide, triggering a rapid shift in prices as one metal catches up with the other.

This time it might be different because the focus of car makers is being diverted by the shift into politically correct electric vehicles which, in their pure form, do not need the catalytic converters which are a feature of gas and diesel engines.

Platinum Miners Outperform

The sharply higher prices for palladium, platinum and rhodium is becoming a point of difference at the top end of mining where Anglo American, a major producer of the metals, has started to outperform its main rivals, BHP and Rio Tinto, on the stock market.

During the final two days of trading last week, Anglo American rose by 3.8%, more than double the performance of BHP and Rio Tinto, which rose by 1.3%.

Much bigger moves were recorded by miners with more concentrated exposure to palladium, platinum and rhodium, including Sibanye Stillwater, the owner of the Stillwater platinum mine in the U.S., which rose by 9.7% in 48 hours and the South African focused Northam Platinum was up 4.6%.

Forbes

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