{"id":90036,"date":"2024-03-03T21:47:23","date_gmt":"2024-03-04T02:47:23","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=90036"},"modified":"2024-03-03T21:47:25","modified_gmt":"2024-03-04T02:47:25","slug":"platinum-rises-from-ashes-of-dieselgate-to-outperform-palladium-whats-next","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=90036","title":{"rendered":"Platinum rises from ashes of \u2018dieselgate\u2019 to outperform palladium. What\u2019s next."},"content":{"rendered":"

Platinum traded higher than palladium this month for the first time in nearly six years, with expectations for a back-to-back annual supply shortage and rising demand for platinum boosting prospects for higher prices. <\/p>\n

The move for platinum has come at the expense of sister metal palladium, a metal that has seen significant price declines, and faces a supply surplus next year. <\/p>\n

\n

On Feb. 8, April platinum futures
\n PLJ24,
\n +0.25%<\/bg-quote><\/p>\n

PL00,
\n +0.25%<\/bg-quote>
\n settled at $894 an ounce on Comex, topping the $892.10 an ounce settlement for the March palladium contract
\n PAH24,
\n +1.93%<\/bg-quote><\/p>\n

PA00,
\n +0.42%<\/bg-quote>.<\/span>
\n That was the first time most-active platinum futures finished above palladium since April 9, 2018, according to Dow Jones Market Data.<\/p>\n

The return of platinum\u2019s traditional premium to palladium is the \u201cconclusion of a structural move that has been in process over the past five years,\u201d said David Holmes, senior vice president, trading and sales, at Heraeus Metals NY. Strong demand had fueled high prices for palladium, prompting car manufacturers to seek out a cheaper substitute in catalytic converters \u2014 platinum. <\/p>\n

The metals are used in the car part, which helps reduce harmful emissions, with palladium mainly used in gasoline-powered vehicles and platinum mostly used in diesel-powered vehicles. <\/p>\n

For now, platinum\u2019s premium has proven to be short-lived, with prices falling back below palladium\u2019s this week. On Thursday, April platinum settled at $905.20 and March palladium ended at $952.80. <\/p>\n

In 2023, however, palladium prices fell by 38% \u2014 much larger than the 6.8% fall in platinum and year to date as of Thursday, palladium\u2019s down 14% versus platinum\u2019s 10% decline. <\/p>\n

Physically backed exchange-traded funds have seen similar performance, with the abrdn Physical Platinum Shares ETF
\n PPLT
\n losing more than 8% last year, while the abrdn Physical Palladium Shares ETF
\n PALL
\n lost nearly 39%.<\/p>\n

\u2018Dieselgate\u2019<\/h2>\n

Platinum\u2019s outperformance versus palladium was a long time coming. <\/p>\n

Volkswagen AG\u2019s
\n VOW,
\n -3.68%<\/bg-quote>
\n 2015 emissions scandal, known as \u201cdieselgate,\u201d had led to a drop in demand for diesel-powered vehicles in Europe and, in turn, less consumption of platinum for emission-controlling catalytic converters. <\/p>\n

It took some time, but that loss in platinum demand has been offset by the substitution of platinum for higher-priced palladium in gasoline-powered vehicles.<\/p>\n

Price parity between platinum and palladium had been \u201clong expected,\u201d and the closing of the price disconnect between the two metals is not a great surprise, said Edward Sterck, director of research at the World Platinum Investment Council (WPIC).<\/p>\n

Platinum is now \u201cin a fundamental market deficit driven by strong demand and strained supply,\u201d he said, and that deficit \u201chasn\u2019t been priced in yet.\u201d<\/p>\n

Palladium\u2019s rise and fall<\/h2>\n

Ironically, it is the rise and fall of palladium that has helped to strengthen platinum prices.<\/p>\n

Despite lower car sales after the 2017 global peak of 100 million light vehicles, which are designed to carry small loads, palladium demand continued to increase, Heraeus\u2019 Holmes said. Countries raised their emissions standards for light vehicles, forcing autocatalytic manufacturers to lift the amount of the metal used in emissions control systems, and offsetting any declines in aggregate vehicle sales, he said.<\/p>\n

In 2022, Russia\u2019s invasion of Ukraine \u201ccompounded a price panic\u201d as Russia is responsible for 60% of the world\u2019s primary palladium production, said Holmes. <\/p>\n

Most-active palladium futures reached a record intraday high in March 2022 at $3,425, according to Dow Jones Market Data. <\/p>\n

The sustained high prices and persistent premium over platinum prices then \u201cencouraged\u201d car manufacturers to substitute out of some palladium in their catalysts in exchange for platinum, Holmes said.<\/p>\n

A transition to battery electric vehicles, or BEVs \u2014 which don\u2019t require any palladium \u2014 from the internal combustion engines also reinforced palladium\u2019s downward price trend, said Holmes. So palladium moved from a metal in a \u201cstructural deficit to a metal in structural surplus that is expected to grow over the next decade.\u201d<\/p>\n

WPIC expects the global palladium market to move into a surplus starting in 2025, and it is forecast to post surpluses each year through at least 2027. <\/p>\n

Global platinum supply, however, is forecast to see deficits of more than 1 million ounces in 2023, and 353,000 ounces for 2024, according to a quarterly report from WPIC released in November. The next quarterly report will be released in early March.<\/p>\n

Demand<\/h2>\n

Platinum demand is \u201cproving remarkably robust, supported by the substitution of platinum for palladium in catalytic converters of gasoline vehicles, and the increasing use of platinum in industrial applications,\u201d Sterck said.<\/p>\n

Platinum is also used in the \u201cfast-growing\u201d hydrogen economy, Sterck said, in which hydrogen is seen as a low-carbon energy source. <\/p>\n

Read archived story:<\/strong> Green hydrogen is opening doors for higher platinum demand<\/p>\n

For palladium, however, the supply-demand outlook isn\u2019t quite as price supportive.<\/p>\n

Palladium demand is expected to remain \u201cbroadly at current levels for a number of years to come, supported by tighter emissions legislation and a growing market share of hybrid vehicles,\u201d said Sterck.<\/p>\n

Meanwhile, more than one million ounces of additional palladium supply is expected to come from the recycling of end-of-life vehicles by 2027, he said, likely lifting the palladium market into a surplus from 2025.<\/p>\n

Challenges<\/h2>\n

The biggest challenge for industrial demand for both platinum and palladium is the \u201chealth of the Chinese economy, global decarbonization efforts, and supply risks,\u201d said Sterck.<\/p>\n

China is the biggest consumer of industrial metals globally, and the economic risks it is facing have the potential to \u201cdampen demand for industrial metals, or at least demand expectations,\u201d he said.<\/p>\n

Global decarbonization efforts, on the other hand, can be positive for industrial metals, said Sterck. <\/p>\n

\u201cWe are effectively trying to pivot from a carbon-based economy to a metals-based economy\u201d and there are signs the future supply plans for a number of these metals\u2026will \u201cnot be sufficient to meet future demand,\u201d he said.<\/p>\n

Current metals prices are \u201cgenerally not sufficient\u201d to motivate the funding of new production now \u2014 production that would only come to the market in eight or more years\u2019 time, given the minimum lead time for a new mine to be built, Sterck said.<\/p>\n

Aboveground stocks, particularly those stockpiled by automakers, had helped to balance the platinum market, and the majority of those stocks are now in China, which had been importing significant amounts of platinum since at least 2019, he said.<\/p>\n

With platinum\u2019s market shortfall having been satisfied by aboveground stocks, the question is what happens when those are depleted \u2014 \u201chow available is China\u2019s stockpile to the world?\u201d Sterck said. <\/p>\n

\u201cI think there\u2019s an inherent investment opportunity in that,\u201d he said.<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Platinum traded higher than palladium this month for the first time in nearly six years, with expectations for a back-to-back annual supply shortage and rising demand for platinum boosting prospects for higher prices. The move for platinum has come at the expense of sister metal palladium, a metal that has seen significant price declines, and […]<\/p>\n","protected":false},"author":1,"featured_media":86983,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-90036","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nPlatinum rises from ashes of \u2018dieselgate\u2019 to outperform palladium. 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