Will Automakers Switch Metals After Palladium Hits Record High?
(Kitco News)- Palladium prices hit a recordhigh this week and widened the premium over sister metal platinum, whichultimately could encourage automakers to switch to platinum for auto catalysts,analysts report.
“In a year that’s seen losses formost other commodities, the rally in palladium has been exceptional,” saidcommodities brokerage SP Angel. “It’s the one major metal that’s at an all-timehigh and prices have almost doubled in the past two years.”
While down from Tuesday’s recordhigh of $1,137.30 an ounce, Nymex December palladium prices are still holdingonto most of their recent gains. December palladium futures last traded at$1,111.10 an ounce, down 1% on the day. Spot metal traded near $1,150 onTuesday.
“Although the price increase ofthe past two days was accompanied by a high trading volume - 60% more futureswere traded yesterday than the average so far this year - the palladium marketis currently very tight and very illiquid,” Commerzbank analysts said in aresearch note. “This is also evidenced in palladium’s forward curve, which isin backwardation throughout.”
Backwardation is when nearbycontracts are more expensive than the deferred, seen as a sign of supply tightnesssince users are paying a premium to obtain metal right away.
“Lease rates also remain veryhigh, which likewise underlines the tightness on the market,” the bank added.
SP Angel said the rallyaccelerated in recent days due to growing geopolitical tensions between theU.S. and Russia, one of the top producers of palladium. The firm also citedstimulus measures in China, the world’s largest auto market.
The primary industrial use ofplatinum group metals is catalytic converters for automobiles. Historically,palladium was cheaper, thus used for gasoline-powered cars. Platinum was moreexpensive but was required for diesel-powered vehicles. For more than a yearnow, however, palladium has been more expensive, thus analysts cite thepotential for manufacturers to start shifting toward more platinum instead.
The palladium market has been ina supply deficit for years, while there is a modest surplus in platinum,according to reports compiled by most analytical firms.
“As a result of palladium’sstrong upswing, the price gap between palladium and platinum has widened toover $320 per troy ounce,” Commerzbank said. “This could prompt auto-catalystmanufacturers to consider using more platinum in their auto catalysts againafter all.”
SP Angel offered a similar view.
“The rally raises the risk thatthe auto industry, the biggest user of palladium, will look to reduceconsumption and instead use more platinum in catalytic converters,” SP Angelsaid. “It’s been 17 years since palladium was last this expensive relative toplatinum.
“Both metals are used in varyingamounts in different engine types, depending on efficiency and price. While itcan take years to design auto catalysts, sizable switching has happened before.The car industry cut palladium usage by almost 50% in two years through 2002after prices spiked, and increased platinum purchases by 37%.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |