Platinum vs. Palladium: The Battle for Supremacy in the Precious Metals World

In the landscape of the precious metals market, platinum finds itself at the centre of a transformative story. The Ukraine war and subsequent sanctions against Russia have triggered disruptions in the supply of critical metals like palladium, opening doors for platinum to stage a remarkable comeback. Precious metal analyst Sanjiv Arole examines whether platinum is set to reclaim its coveted position among precious metals.

The Ukraine war has created a piquant situation in the precious metals market. For, sanctions against Russia by US-led NATO allies have resulted in supplies of rough diamonds, gold and, in particular, PGMs from Russia being disrupted or not reported at all. Now, Russia is one of the largest exporters of palladium in the world. Palladium is used extensively as a catalyst in the automobile industry as well as in several other fields in different applications.

Just last year the palladium price scaled an all-time high of over $3,440 per ounce, it was around 3 times the price of platinum and almost double that of gold. However, the disruption in the supplies of palladium and its non-reportage has resulted in the palladium price reaching a low of $1,197 per ounce recently in the international markets. This has provided a unique opportunity for platinum.

On September 26, 2023, the platinum price was less than half that of gold and still around 34% less than that of the palladium price.

As both palladium and platinum are used as catalytic convertors, platinum can be used as a substitute to palladium in many applications. In spite of the fact that the price differential is not as large as it was last year, the shift from palladium to platinum is already gathering momentum.

It cannot be a rapid transition for technological changes have to be incorporated. Then, as a bonus, a shift from gold-studded jewellery to platinum-engraved diamond jewellery can also be envisaged.

The price differential, if nothing else, could propel a push towards platinum diamond jewellery instead of the costlier studded gold jewellery. This is in spite of the fact that jewellery-making in platinum requires far greater skill sets due to the hardness of the metal. But it can be a perfect fit for diamond-studded platinum jewellery due to less of a chance of diamonds falling off gold jewellery pieces.

So, will it be a turnaround time for platinum? Will 2023 usher in a new era for platinum? Is the time ripe for platinum to regain its pole position in the precious metals grid?

One needs to find where platinum actually stands in the current scenario in order to determine if it is in the right place at the right time to avail this glorious opportunity.

Platinum was always the topper in the precious metals class right from the 1980s when its prices have been recorded. Right through till 2012, platinum was the No.1 and gold the perennial No.2. In fact, after the sub-prime induced global meltdown in the financial markets that saw many like Lehman Brothers bite the dust, platinum hit its all-time high of $2,273 per ounce in March 2008. It was a spectacular ride for platinum then from around the 2007 average price of $1,306 per ounce and $912 per ounce earlier in the piece. It was even able to pip gold to the post in 2011 when the yellow metal scaled its then all-time high of $1,921 per ounce in September 2011. It went below gold for the first time in 2012 when gold’s average price overtook the platinum price. Much later palladium overtook both gold and platinum on the way to its all-time of over $3440 per ounce on March 7, 2022.

According to The World Platinum Investment Council (WPIC), platinum is one of the rarest metals in the world, with unique physical and catalytic properties making it highly valued across a number of diverse demand segments, including key technologies that make it a critical mineral for the energy transition.

Automotive demand for platinum is the largest demand segment for this white metal, accounting for around 31-46% of the total demand over the last several years.

Platinum’s usage in various industrial applications make it the second largest demand segment at nearly 26-36% of the total demand over the last few years. Moreover, annual jewellery demand has been around 23-30% of the total demand for platinum, while investment demand ranges between 10-20% over several years. It is pertinent to note that mined supply of platinum was just 5 million ounces in 2022 as compared to 6.8 moz in 2006.

In a recent report, WPIC underlined that the automotive demand for platinum this year would reach its highest levels since 2017 and now forecasts a platinum deficit of over one million ounces (1/5th its total mined supply in 2022) for 2023. The key reasons for widening deficit of platinum were strong automotive demand coupled with record levels of industrial demand growth as well as flat supply.

The report further stated that demand for platinum in the automotive sector is expected to reach 3,283000 ounces in 2023, up by 13% over the 2017 level. The automotive demand was primarily fuelled by platinum-for-palladium substitution initiated from the last year or so and forecasted to scale 615000 ounces in 2023, and higher loadings. Moreover, it received a boost from higher-than-expected growth in vehicle production during the second quarter of 2023. This was because the impact of shortage of semiconductors that hampered vehicle production last year and other supply chain challenges that plagued the industry as a result of the pandemic and the Ukraine war appeared to have dissipated to a great extent.

Significantly, WPIC noted that both light vehicle production as well as heavy duty vehicle showed an improvement of 14% and 18%, respectively in the second quarter of 2023. Moreover, vehicle production in both China and Japan showed impressive growth in the second quarter of 2023.

In China, automotive demand for platinum surged by 60% due to implementation of China IV for non-road vehicles as well as the HDV segment, where output recovered by 64%, while LDV production grew by 17%.

On top of that Japan’s LDV production of petrol and diesel cars increased by 20% as compared to the same quarter in 2022 (hit by semiconductor shortages then).

Elsewhere, production also improved by 11%, resulting in further demand for platinum. What was worth underlining was that despite challenging macroeconomic conditions and higher cost of living, demand for new vehicles exceeded supply, even at higher production rates.

The year 2022 was a tumultuous one for the PGMs mainly due to the Ukraine war. The war saw palladium soar to its all-time high of $3,440 per ounce on March 7, 2022. However, following sanctions against Russia, disruptions in supply of palladium and non-reporting as well lower demand due to very high prices saw the demand as well as the price being adversely impacted.

In fact, the average palladium price in 2002 was $2,112 per ounce (up by over 7% as compared to 2021). In 2023, it has declined even below the 2021 average price to average $1,422.08 per ounce (a whopping fall of around 48.5%). The immediate beneficiary was platinum as in spite of a rise in the average price of platinum in 2022 as well as 2023, demand did not falter but instead showed an impressive growth in the second quarter of 2023. This was even though the average price in 2023 till date showed a 2.5% rise in price. Therefore, it is evident that the shift from palladium to platinum in catalytic convertors for the automotive industry has gathered momentum and is even supported at higher prices.

A PGM summary of the 2022 Johnson Matthey report (wrt platinum) that was released in May 2023 is given below in brief: For the PGM markets, 2022 were a year of stark contrasts. The Ukraine war caused a spike in prices across the board due to anticipation of serious liquidity squeeze of PGMs from Russia. Even the other PGMs showed a spike in prices despite limited exposure to Russian supplies. This was also due to customers scrambling to secure their metal requirements.

In the second half, availability improved, and prices showed a downtrend as a result of worsening macro-economic and lacklustre demand in most PGMs, barring platinum.  The substitution juggernaut was just about taking off in the automotive and glass sectors.  Then, automotive PGM consumption rose by 4%, with platinum taking all the growth. Industrial demand for platinum remained robust, with record sales on the SGE. Smelter maintenance and electricity shortages hit PGM supplies from South Africa.

Does all of the above herald a ‘New Era’ of substitution for platinum, replacing palladium in automotive and industrial usages, and gold in studded jewellery segment?

Even if the Ukraine war was to stop overnight there are no guarantees that palladium will regain its lost ground. For, the substitution of palladium with platinum made so far cannot simply be reversed. In fact, palladium would be hard pressed to maintain its position hereafter. However, availability of platinum and technological changes required could mean that wholesale shift to platinum is not on the cards at all.

As far as replacing gold in diamond jewellery with platinum due to huge price differential too could be confined to a niche segment of platinum jewellery. The points that seem to have gone against platinum vis-a-vis gold are – gold is a proven safe haven, it is a reliable counter to the US dollar, and then a weak economy and geo-political tensions see people flock to gold. Moreover, huge demand for gold in jewellery, in investments, etc. is ever present to provide support to gold.

Even during the pandemic, gold acted both as income source of last resort and first, as a savings option. Then, while hedging of gold tends to depress the gold price, de-hedging invariably boosts the gold price. Gold is a preferred metal on the commodity exchanges as well. Last, but not in the least is the fact that yearly gold supply runs into thousands of tonnes.

As it is available only in a few thousand ounces per annum as supply, platinum cannot become a universal option. Being an industrial metal as an auto catalyst, in glass industry and as jewellery it is impacted by recession, slowdown and more so by the pandemic. As jewellery it can only be a niche market and cannot really challenge gold or even silver for that matter. Moreover, the extremely low quantities available for delivery makes platinum unviable on the commodity exchanges.

Despite the above, happier days are on the anvil for platinum in future!

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