Palladium Prices Soar as Supply Sags

Currently, palladium is one of the most valuable precious metals in the industry. More in-demand than gold and platinum, this shiny white metal continues to rise in price as supply falls.

What is Palladium?

A member of the “Platinum Group Metals” (PGM), Palladium shares many characteristics with its fellow group members platinum, rhodium, ruthenium, iridium, and osmium. Used in the composition of many industrial and electronic products, it is often rolled into sheets to be used for fuel cells and solar energy. Additionally, the dentistry and jewelry industry also find many helpful uses for this lustrous metal. Notably used for catalytic converters, this white metal holds great value for the automaking industry as well. Catalytic converters serve to reduce toxic gases and pollutants from gas and diesel car engines - an important device for protecting air quality. Interestingly, the rise of palladium’s value saw an increase in hybrid vehicle theft such as Priuses, as they contain a thick coating of this silvery-white metal on their exhaust.

Why is the Price Rising?

As Palladium and other similar metals become too expensive and difficult to mine, the supply for this precious metal drops. Members of the Platinum Metals Group have been in supply-deficit for many years, contributing to the steep price boost. Simply put, the mechanics of “supply and demand” are at work, and miners struggle to keep up.  To put the growth rate in perspective, palladium started off in Jan 2019 at $1,315.90 per oz. Then in early January 2020, it rose to $2,029 an oz- a 54.19% increase: Similarly, gold saw an upturn in price, but not nearly as steep.  In Jan 2019 gold traded at $1,285.90 an oz, then rose to $1,521.50 in Jan 2020 - only 18.32%. 

Reason for the Struggling Supply

Mining companies have less flexibility to raise their palladium output as they mine it as a secondary product. This only occurs when they extract platinum and nickel from the earth. Because this valuable metal is simply a by-product of other metals’ extraction, there is no easy way to procure this in-demand white alloy.  

Winners and Losers

The largest palladium producer in the world, Russia’s Nornickel, stands to benefit the most from surging palladium value. Similarly, South African platinum miners who dig up this precious white metal alongside platinum also gain from this value increase. Conversely, due to the declining supply of palladium, carmakers currently find themselves paying more and more for the metal. Consequently, this will most likely negatively impact the consumers, as the automakers will pass along the price hike to them. Customers may see an astronomical increase in car prices if the supply of palladium continues to decline.

How Can Automakers Adjust?

Despite the alarming supply deficit, a viable substitute for palladium's use in catalytic converters continues to evade automakers. Technological advances not currently in our grasp would provide the necessary stepping-stone to a possible solution. Until then, carmakers like the luxury brand Daimler AG prefer to focus their energy on electrification and batteries, rather than this precious metal. Although electric cars don’t have exhaust pipes or use corrosion-resistant metal, many experts believe the large-scale electrification of the world’s vehicles is many years away.

Recorded Spikes for Other Precious Metals

The surge in this metal's value doesn't surprise many analysts in the industry, as it follows an emerging pattern. Precious metals used by the auto industry recorded price spikes as demand surpassed supply. For example, platinum’s value shot up over 500% within 10 years starting in 1998, when speculation drove up the price. Similarly, rhodium rose a whopping 4,000% during a similar timespan. This price increase slowed when the auto industry discovered methods that used less of the precious metal. As buyers worried about slowing Russian sales, palladium itself jumped in 1996 until it plateaued in 2001.

What's Next?

Michael Jones, CEO of Platinum Metal Groups, said in an April 2019 interview that “even if global auto sales cool, the [amount of palladium] per car is going up dramatically”. This means that palladium’s dwindling supply may cause concern for the auto industry and consumers alike leading them to purchase fewer cars. However, the amount of palladium per car would grow, keeping the demand high. Jones’ belief in this metal’s safe investment status was highlighted with his following statement. He said, “In China alone, an additional million ounces of palladium is going to be needed by car companies to meet emission standards in the next three years”. It appears thousands of investors agreed with Jones about palladium’s value, as the price of the metal spiked over 73% in the last ten months. Based on market data from the past several years, it seems palladium’s historic rise may continue on for the time being.

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