Platinum boom on the horizon? Not so fast!
London (June 5) Palladium has been the stand out performer in commodity markets over the past three years – up 160%. Palladium, mainly used in catalytic converters to control emissions from gasoline engines has been supported by a switch away from diesel vehicles and by the introduction of tighter vehicle emissions standards in China and elsewhere in the world.
Investors look to play the price differential
Investors reluctant to follow the bull market in palladium have been looking at alternative ways to bet on increasing emissions standards. The other main metal used in catalytic converters is platinum. Platinum demand has been under pressure since 2015 following the Volkswagen diesel-engine emissions cheating scandal in the US.
Platinum is extremely cheap compared with palladium. Platinum prices have declined by 17% over the past three years while the platinum/palladium ratio has declined to its lowest level since 2001.
However, that of course doesn’t mean the ratio has to correct through higher platinum prices. Lower palladium prices and/or a combination of the two works just as well.
Switch to platinum will take time
Some investors it seems are backing the former. Holdings in platinum-backed ETFs have surged by 15% this year to reach a 4 year high as investors bet that carmakers will start to use the metal in petrol car catalysts.
But according to the car industry a substitution towards diesel is far from being a done deal. Rahul Mital, global technical specialist at General Motors suggested at a London Bullion Market Association meeting late last year that it would take some time to switch and even then the price benefits don’t necessarily warrant it:
“Any time you want to make a substitution like that, it is at least 18 months to a two-year cycle if we’re going to switch. We have to be careful that by the time we do all that.”
According to the World Platinum Investment Council (WPIC) a 5% substitution would mean a 14% increase in platinum demand from the automotive demand segment. However, given that catalyst demand is roughly half as important to platinum demand as it is for palladium (40% vs 79%) it may take a large switch to have a material impact on overall platinum demand.
MaterialsRiskNews
