Today, palladium trades for less than a third of platinum, but is that fair?
Palladium is one of the PGMs (Platinum Group Metals). These metals are elements (remember the periodic chart) and share similar chemical properties. In addition to palladium and platinum, PGMs contain rhodium, ruthenium, iridium and osmium.
Interestingly, these metals rarely occur around the world, but they can be found near each other. Nevertheless, their ore can be difficult to mine.
Per the International Platinum Group Metals Association, one in four goods manufactured today either contains PGMs or had PGMs play an important role in their manufacture. Furthermore, PGMs play important roles in automotive, industrial, environmental, medical, technological, jewelry and other miscellaneous applications.
Thinking of the economic rules of supply (difficult to mine) and demand (lots of uses), why is palladium much less than platinum?
This article, Platinum-palladium price gap will narrow further – Stillwater, claims one of the reasons platinum prices remain higher is due to the dominant role South African mines play in the production of PGMs. “This is because the market price for platinum, which accounts for most South African PGM production, will need to be high enough to incentivise miners in the country to bring on new capacity to meet global requirements for the metals.”
But, per the article, the Stillwater mines in Montana produce more palladium than platinum.
Plus, palladium and platinum are interchangeable in some applications such as catalytic converters for cars.
If the same amount of metal at 1/3 of the price (for now) can be used, wouldn’t it make economic sense to use palladium?
Logically, that means the demand for palladium increases. Back to the rules of supply and demand. The demand increases, the supply remains difficult to obtain and the prices should go up.
This article substantiates the increase in demand, but with only a small increase in price. (Demand for PGMs to rise, prices steady) China became one of the biggest consumers of PGMs goods in 2009. This year with emissions rules for their vehicles, they should see an increase in automotive PGMs (e.g., palladium).
Frank McAllister, CEO of Stillwater Mining, thinks the price of palladium will rise to half that of platinum, however he cautions that price will be determined by the market and the speculators.
The disparity in PGMs, in particular platinum and palladium, remains odd and bears watching.