Platinum and Palladium in 2020 and Beyond
The markets and prices of platinum and palladium were due for some major changes in 2020, after developments over the past few years that astounded and surprised many.
Then came the novel coronavirus pandemic, the oil price war between Saudi Arabia and Russia, and the immediate plunge of most countries’ economies into deep recessions. These developments hit fabrication demand for these metals hard and drove prices sharply lower in the two weeks between the time HSE requested this article from CPM and the time we were writing it.
In reality the outlook for these two sister metals is relatively straight forward. However, given the enormous amount of misinformation, and wildly inaccurate statistics and analysis in these markets, many market participants repeatedly are surprised by developments.
For years the platinum mining companies in South Africa said there were massive ongoing deficits in platinum supply, and the weak platinum prices did not make sense in light of this. In reality, there were massive surpluses, and the weak platinum prices were perfectly logical if you understood this.
Now the platinum miners in South Africa say that there have been and continue to be massive deficits in palladium. This explains the sharp rise in palladium prices, they say. They also say that fabrication demand for palladium from the auto industry had been very strong, at least up to the middle part of March when the global economy fell apart. This latter assertion was in start contrast to comments by the world’ largest palladium producer in Russia, which said that the high prices had reduced auto demand for palladium and that the price increase reflected investors and speculators buying and hoarding palladium, not fabrication demand. The Russian view was amply supported by market data and information, seeming much more credible.
There are many other commonly accepted ideas in platinum and palladium that are simply not true, and much that is not known or said.
For example, auto makers have been substituting small amount of platinum for palladium in catalysts for gasoline-powered vehicles. This has been ignored or denied. Now the pace will accelerate as vehicles re-engineered to take more platinum intense cars come into production. This move is being heralded as being made possible through the invention of trimetallic ‘three-way catalytic converters.’ In reality, these three-way converters were the standard catalysts used on virtually every car that took a catalyst from 1980, when the U.S. phased in nitrous and nitric oxide emission standards, into the turn of the century, when a combination of wild gyrations in palladium prices, emission standards coming into being for diesel catalysts, recessionary auto markets, and other factors led to a move toward a vastly more heterogenous range of auto catalysts being manufactured and used. Three-way catalysts were the work-horses of emission control technology since emission standards first were introduced by the U.S. government in the 1970s.
The markets for these metals are hit by a wide range of misunderstandings, and not just those put forth by producers and their marketing agents.
There are wildly over optimistic projections about how fast electric vehicles may gain market share, overlooking enormous structural impediments. As a result, many platinum and palladium market participants, including investment managers, assume the use of these metals to clean exhaust from diesel and gasoline powered vehicles will disappear far more quickly than should reasonably be expected. This has limited investment into the metals and the mining companies, and has skewed long-term mine development decision making.
On the other side, the South African platinum miners and their marketing agents have been projecting that hundreds of thousands of ounces of platinum would be used in fuel cell powered automobiles… since the 1970s. It has yet to happen.
So what about prices in 2020?
The charts here show accurate representations of both historical and future balances between these two metals. One can see that the trends for these two metals are reversing in the long-run. For now, platinum remains well supplied while the amount of palladium being refined is rising to surpass the amount of this metals being used in fabricated products.
This means that, setting aside the chaos abroad in the world this year, one might expect palladium prices to stop rising and maybe fall in 2020 and subsequent years.
Platinum meanwhile would be expected to remain relatively low for a while, until the market balance of newly refined platinum entering the market relative to fabrication demand tightened further.
The palladium scenario has been fueled further and faster by the virtual collapse of auto production and sales in most of the world. This will keep palladium prices weak during the first half of 2020. If government efforts to resuscitate their economies succeed, by the second half auto production and sales may begin to recover, and palladium prices might stabilize, down from their first quarter peak levels.
For platinum the global economic crisis will prolong its revival. Prices should be expected to remain weak through 2020 and into 2021. Even as the auto industry recovers and auto manufacturers accelerate their shift back to using more platinum at the expense of palladium, the platinum market will remain well supplied for the next few years, limiting price increases until such time as investors awake to the realities of (a) recovering auto production and sales, (b) an accelerated shift back toward platinum in catalysts, and (c) the reality that future motive energy supplies will not replace the need for platinum, palladium, and rhodium in catalysts for many years.