The Rise And Fall Of Platinum And Palladium

Platinum and palladium come from the same family, and both have the vast majority of their industrial uses in motor vehicle exhaust systems, with platinum’s extending to lab equipment, and electrical contacts among others. Both, however, have very different and diverging price set ups.

Back in March 2008, platinum hit its all time high at $2252/oz. This was brought about by not only a weak dollar but also production concerns due to South African mining power problems. Remarkably, it fell to $774/oz in November 2008 such was the sell off. Palladium at the same time that platinum hit its high was sitting at around $560/oz, and during the same bear trend hit a low of $165/oz. When you look at the recent highs of a few months ago when palladium peaked at over $3000/oz, that’s a whopping 1718% increase.

Here are some facts about the metals; platinum is around 15 times rarer than gold, and up until a few years ago always carried a higher price than gold. After silver, platinum is the second most shorted industrial metal on the planet. Platinum is also very heavily used in cancer treatment drugs, and it can take up to 6 months and 7 to 12 tons of ore to produce one troy ounce of platinum.

More than half of all the palladium annually mined is turned into catalytic converters. Russia and South Africa supply about 40% of the world’s palladium, making them the highest producers each year. Palladium did also have a huge short position until they gave up the ghost and allowed a price discovery of sorts.

So supply of both metals is both expensive and time consuming. Last year, for the tenth year in a row, palladium’s supply fell short of its demand. Platinum production has not increased over the years to allow for the additional demand. We saw prices tank in March 2020 during the “sell everything” collapse, but both have recovered to more than gain over 100% of their lows relatively quickly. So why has palladium hit its all time high in the last three months, yet platinum is sitting at under 50% of its highs at today’s prices?

Platinum demand during the majority of 2020 was subdued due to the global shutdown; however now appears to be strengthening. China—a commodity stacking powerhouse—has increased stock piles. Due to the price of palladium being more than double platinum in recent times, there has also been a drive for substitution of palladium by platinum in automotive use. This is starting to bring about greater investor interest, particularly with platinum’s links to the hydrogen fuel cells, and the sudden realization of this.

The bottom line is platinum at under $1000/oz appears to be a great buy and hold opportunity. Relative to other commodities (please read silver and said market short positions) it seems an extremely good value, as do some of the mining companies. Platinum doesn’t have the history of gold and silver and sometimes is the forgotten metal. The fundamentals however, suggest otherwise, and President Joseph Biden’s Green plan only serves to reinforce this further.

When palladium’s short sellers threw in the towel, the price went up by 5x. Could the same happen to platinum over the next few years?