Palladium and platinum have historically been favorable among investors as both precious metals are in high demand in the automotive industry. The two metals are part of the platinum group metals (PGMs) family. According to the United States Geological Survey, PGMs comprise:
Palladium and platinum are very rare and could rise in price in the near future due to them having the potential to be key components in hydrogen energy.
In this post, The Assay breaks down palladium and platinum to comprehensively understand what makes them important commodities for investors in the precious metals market.
What is palladium?
Palladium is a chemical element with the symbol Pd and has the atomic number 46. It is a shiny silver-white metal that has a face-centered cubic crystalline structure. As a noble metal, it is effectively resistant to erosion of air and acids.
Where to find palladium
Originally discovered in 1803 in a South African crude platinum ore by William Hyde Wollaston, palladium can now be found in Australia, Brazil, Russia, Ethiopia, and North and South America. Palladium is also recovered commercially from nickel and copper deposits in South Africa and Canada.
Russia and South Africa are two of the world’s largest producers of the rare precious metal, with the significant Nornickel (MCX: GMKN) mine located in the Norilsk-Talnakh area of Siberia, and the Anglo American (LON: AAL) Mogalakwena platinum open pit mine located in the Limpopo Province.
In recent years, there has been a global deficit of palladium due to the tightening of environmental policies regarding the auto industry, which stipulates the enforcement of catalytic converters.
The graph above, sourced from Statista.com, shows the worldwide supply of palladium from 2013-2022. Quite noticeably, the world’s supply of palladium plummeted in 2020 due to the suspension of Nornickel’s Taimyrsky and Oktyabrsky mines due to severe flooding. As a result, the mining giant experienced a 28% reduction in palladium output, reducing the global supply to 6.4Moz.
A culmination of these factors has resulted in palladium being one of the rarest metals. Palladium is estimated to be about 15 times rarer than platinum, making it significantly more expensive per ounce. In fact, palladium is currently the most expensive among the four major precious metals (platinum, gold, and silver).
What is platinum?
Platinum is the second most valuable of the four major precious metals, it is a chemical element with the symbol Pt and the atomic number 78. Platinum is a glossy silvery-white, ductile, malleable metal.
Platinum is also a noble metal, meaning it is unchanged by air and water but will dissolve in Aqua Regia, hot concentrated phosphoric and sulphuric acids, and in molten alkali. Much like palladium, platinum is one of the world’s rare metals, accounting for its high valuation point.
Where is platinum found?
Platinum was discovered in South America independently by Antonio de Ulloa in 1735 and by N. Wood in 1741, but it had been in use by pre-Columbian Indians. Platinum appears in thin sulfide layers in certain mafic igneous bodies and is mined in Canada, Russia, South Africa, the USA, Zimbabwe and Australia. Some platinum is acquired as a by-product of copper and nickel processing.
There are extensive platinum mining operations in Russia and South Africa, with these two countries being the world’s leaders in production. Some of the most significant projects include the Russian Nornickel Kola MMC mine located in Murmansk Oblast, and the Impala Platinum Holdings‘ (JSE: IMP) Impala Mine located in the Northwest of South Africa.
The rarity of platinum can be expressed as a “mass fraction”, or how many kg can be anticipated to be found per billion kg of crust material. Platinum is estimated at around five parts per billion. In other words, there is a very small supply of platinum, resulting in its extreme rarity and attractive addition to an investment portfolio.
The graph above shows the current worldwide reserves of platinum in 2021. Total platinum reserves are estimated to be at the 69,000t mark. South Africa is particularly dominant in the platinum reserves space, maintaining almost 95%, or 63,000t.
In 2020, Russia had an estimated 3,900t of platinum, placing it second, though still far behind South Africa.
How do these precious metals differ?
Whilst both metals share a similar shiny white appearance, they have differing physical attributes and properties. Palladium is a slightly harder metal than platinum, meaning it is more difficult to scratch and it does not require rhodium polish to maintain its luster.
Platinum is one of the most popular choices for jewelry, despite being less hard than palladium, it is extremely malleable.
According to the National Library of Medicine, platinum is significantly denser at around 21.45g/cm3 in comparison to palladium which is 12.0g/cm3, and has a higher melting point, making it more desirable for intense heat applications.
Platinum is an exceptional oxidizer of carbon dioxide and has been a long-time favorite for catalytic converters. However, palladium is also frequently used as an oxidizing catalyst. Typically, diesel engine exhaust gas cannot be managed as well by palladium, especially due to its lower melting point, so automakers favor platinum.
Palladium is a by-product of platinum (and nickel), meaning it does not need to be separately mined and is therefore could be seen as more eco-friendly than many metals.
What is palladium used for?
More and more, palladium is being used for jewelry and dental applications. It is sometimes alloyed with other metals to create decolourized alternatives, such as white gold. When alloyed with other metals, palladium also becomes extremely hard.
According to the Royal Society of Chemistry (RSC), palladium is also used in the electronics industry in ceramic capacitors, found in laptop computers and mobile phones. These consist of layers of palladium sandwiched between layers of ceramic.
The RSC explains that finely separated palladium is also a powerful catalyst and is used for hydrogenation and dehydrogenation reactions.
Industrial uses for palladium
Fuel cells are becoming an increasingly more common application of palladium. They are frequently used to power a variety of products, including cars and buses.
Palladium is mainly used in catalytic converters. The auto sector accounts for about 80% of industrial palladium demand.
Presently, palladium is the metal used in petrol vehicle catalytic converters, with about two to seven grams per unit, depending on the vehicle. Platinum has a lesser temperature tolerance, which is why it is predominantly used in diesel or hybrid vehicles.
What is platinum used for?
Platinum’s ability to withstand tarnish – and its durable characteristics – makes it well suited for fine jewellery, which is causing it to become a more common choice for consumers.
The RSC states that platinum is used in the electronics industry for computer hard disks, thermocouples, optical fibers, LCDs, turbine blades, spark plugs, pacemakers, and dental fillings.
Platinum compounds are also vital in chemotherapy drugs used to treat cancers.
Industrial uses for platinum
Platinum’s central use is in catalytic converters for cars, trucks and buses, which accounts for an estimated 50% of demand each year. Platinum is excellent at converting emissions from the vehicle’s engine into less harmful waste products.
The chemicals industry also utilizes platinum in several ways, most significantly as a catalyst to produce nitric acid, silicone, and benzene. It is also commonly applied to improve the effectiveness of fuel cells.
Palladium price history
Platinum and palladium experienced contrasting price movements over the past several years. In September 2017, the value of palladium surpassed that of platinum for the first time since 2000.
The price of palladium reached US$2,231 per ounce by 15 January 2020, according to S&P Capital, having risen 77% since the start of 2019. As reported by Reuters, between 2016 to 2020, palladium costs increased by 400% due to a chronic undersupply sparked by the tightening of environmental policies on automakers.
Furthermore, 2021 saw palladium spot prices per oz fluctuate significantly, with a historical price high of US$2,971 and a significant historical low of US$1,854. The downward trend eased by November 2021, when prices rocketed to US$2,180, then declined again in January 2022 to a spot price of US$1,862.
Palladium prices continued to fluctuate throughout 2022, ranging from US$1,800 to US$2,900. However, the last quarter of 2022 saw a downward trend in pricing, ending the year with a spot price of US$1,719.
Despite the downward trend in 2023, palladium prices remain higher than platinum. The current spot price in February 2023 is US$1,490.
Palladium price forecast: 2023 to 2027
In 2022, palladium prices were volatile due to macroeconomic and geopolitical factors, with an overall drop of 1.7%. However, the optimistic view on the metal prices for 2023 was demonstrated by the price rallying at the end of 2022. This turned around quickly due to the growing concerns surrounding the slowing down of the global economy.
Additionally, S&P Market Intelligence has revised down consensus prices for palladium by 0.7% as the growing concerns regarding a decline in automotive demand continue into 2023.
As a result, palladium prices from 2023 to 2027 are forecasted to decline, with a projected average price of US$800 by 2027.
Platinum price history
Platinum averaged US$883 in 2020. A sustained period of oversupply pushed platinum to an 18-year low spot price of US$558 an ounce in 2020.
Platinum prices jumped to a 6.5 year high of US$1,336.50 an oz in February 2021, and have continued to have a significant period of demand despite reports of a production surplus forecast by the end of the year.
Platinum prices in 2022 trended lower than in 2021, averaging US$958/oz.
However, platinum prices shifted from US$850 in August to US$1,047 in December. Following a positive trend, the demand for platinum is projected to grow.
Coming into 2023, there is a slight fluctuation in pricing, dropping from US$1,063 in January to US$953 in February 2023. The overall market remains optimistic, expecting both demand and prices to increase in accordance with an expected 10% increase in industrial demand.
Platinum price forecast: 2023 to 2027
Reuters analysts and traders increased their platinum price forecasts in 2021 as prospects of more restricted supply and demand from the auto and hydrogen industries started to overturn 10 years of declines.
The global platinum market is expected to remain in a surplus of 637,000oz in 2022, the World Platinum Investment Council said in its 2021 Q3 Platinum Quarterly report, after it increased its 2021 surplus outlook to 769,000oz, from 190,000oz.
However, the report states that sustained economic revival and easing supply restrictions should see global demand for a platinum increase in 2022, with a forecast of a 3% rise to 7.6Moz.
Similarly to palladium prices in 2022, platinum prices were volatile throughout the year and ended 2022 with a price rally. In addition, the price of platinum rose by 12% overall during 2022.
However, S&P Market Intelligence predicts a slower growth rate in 2023 through to 2027, at less than 1% each year. A slow and steady increase in platinum prices is forecasted to reach an average of US$1,566 by 2027.
Palladium vs Platinum Price
Palladium and platinum prices are projected to trend in opposite directions in the next few years. The industrial usage does alternate between the two depending on the prices, which also causes more price fluctuations. Despite this, the demand for platinum is expected to grow in the coming years.
Palladium prices have seen an upward trend between 2021 to 2023, and prices traded at their highest at US$2,981 during 2021 and 2022. However, palladium prices are expected to decline by half by the end of 2027 due to uncertainty around the global economy. However, platinum prices are expected to grow by less than 1% annually until 2027.
The rarity of palladium and platinum may ensure an upward trend in pricing in the future. However, since palladium is 15 times rarer than platinum, it is a higher-quality option despite the expected price decline in the coming years.
Weighing up the differences
Palladium and platinum are similar commodities, maintaining a steady pace in the automotive industry. Generally, platinum is preferred in diesel catalytic converters, and palladium leads the way in petrol-driven vehicles.
The drastic increase in palladium prices from 2022 to 2023 will understandably have some negative consequences, as automakers frequently fluctuate between the two precious metals when prices rise.
In addition, they might not be in such a rush to switch back to platinum due to the lack of global production diversity, with South Africa maintaining 95% of the worldwide platinum reserves. The rest of the world would undoubtedly be affected if there were any supply disruptions.
Moreover, due to the growing concern about the global economy slowing down, platinum prices are expected to grow by less than 1% till 2027. In contrast, palladium prices are forecasted to halve by 2027.
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