Is a Mania over Palladium Coming Up

In December 2018, the palladium became more expensive than gold for the first time in the last 16 years. The trend for its price increase continues this year. A week before the end of February, an ounce of palladium costs about USD 1,500, while gold was traded at about USD 1,330 per ounce. This means that the silver-white precious metal plays an increasingly important role in the global economy and attracts the attention of speculators.

Palladium is part of the platinum group, which includes ruthenium, rhodium, osmium, iridium and the platinum itself. 80% of the amount of palladium produced in the world is used in gasoline vehicle catalysts. Palladium in catalysts converts the pollutants into carbon dioxide and water vapour. This protects the environment. It does not corrode and that is why it is also used in electrical engineering. Surgical instruments are made of it. It is also used in jewellery, dentistry and other sectors.

The history of palladium as a chemical element known to people started in 1803. It was named after the ancient Greek goddess of wisdom Pallas Athena. It is contained in nickel ores and has the lowest density and the lowest melting point of the metals from the platinum group. At room temperature, it can absorb hydrogen with 900 times greater volume than its own. Palladium is a good catalyst for reactions, associated with hydrogen. It is used together with copper and gold to colour the gold in an alloy called “white gold.”

The observed rise in prices is explained by the growth of the global demand, due to the needs of the automotive industry. Last year, the global demand reached 8.5 million ounces. For most of the last decade, the demand exceeded supply, writes the Metals Focus consulting company. It is expected that in 2019, for an eighth consecutive year, the production of palladium will be less than what is demanded.

Recently, fewer diesel cars (using palladium platinum) have been purchased in Europe, but more and more gasoline vehicles are being sought. In addition, China’s automobile pollution regulations are being tightened, and it forces car manufacturers to increase the amount of palladium they use. “We are about to face a significant increase in Chinese palladium purchases because it is more and more likely that some cities and provinces will implement the new regulations earlier. This can happen as early as 2019 and will lead to a two-digit increase in palladium consumption in Chinese cars,” claims Peter Duncan, General Manager for Market Research at the British company Matthey.

“In the long run, strong demand and higher prices will continue. However, we expect a correction in the price of palladium in the near future,” says Suki Cooper, precious metals analyst at Standard Chartered Bank.

The metal is mainly produced in Russia, the Republic of South Africa and Zimbabwe. Russia alone is responsible for 50% of the world yield. The company Norwich Nickel provides 40% of the global supply of the raw material. For it and for producers in countries such as the Republic of South Africa, the rise in the price of the metal comes as great news, but car makers, and perhaps car buyers, would also like for it to be put under control because it affects car prices in a negative way.

Actually, analysts are discussing that if the price of palladium continues to rise, car makers may look for substitutes. However, they would require technological innovations and car modifications that would take months. Vehicle electrification could be a solution, but it still has a limited impact on the car market. Hybrids also need metals, such as palladium...

Does this all mean that speculators have their new bitcoin in the form of palladium, so that its rising value will bring them easy money? According to IndependentSpeculator.com, the expectations for gold or rather a palladium rain are unjustified.

“It is important that 20 years ago platinum and palladium were more expensive than gold, with palladium having a higher rate than platinum, just as now. But it did not last long. And it did not turn palladium into an asset in which one could find a safe harbour in the market. After its price jumped, its performance has been mediocre in the next 15 years. The story of how “China likes gasoline cars” raised the price of palladium, while new Chinese car makers are selling on the market new cheap electric cars. However, this does not mean a sustainable increase in the demand for palladium. Today, the metal is more expensive than gold, but this does not make it a precious metal – not in the sense of an asset that can protect wealth. Remember that palladium prices have tripled over the last five years. The last time something like this happened with platinum or palladium, their prices collapsed soon after,” says the author of the Lobo Tigre site.

The jump in the price of palladium, however, also makes analysts optimistic. Aakash Doshi, of Citigroup, wrote in the report on behalf of the bank that “The fundamental indicators of the palladium market are the strongest for the last two decades.”

In order to understand the future of the metal, named after Athena Paladas, obviously what is needed are not only calculations but also wisdom.