Will hot ‘white metals’ cool?

While gold and silver grab the headlines, the other two main members of the precious metals group, often known as the white metals, have soared too. Platinum has gained around 15% this year to $1,700 dollars an ounce. Palladium has risen by more than 50% to a nine-year high of $650 an ounce.

Both metals are used mainly in catalytic converters, with platinum applied to diesel motors and palladium to petrol engines. In the case of palladium, autocatalysts comprise 52% of demand; in both cases, other industrial uses and jewellery account for the rest. So the metals are really a play on the global economy. Investors don’t flock to them when they just want a traditional safe haven, says Philip Klapwijk of metals consultancy GFMS. The eurozone crisis in the summer spurred demand for gold and silver bullion, but sales of platinum and palladium bars or coins barely moved.

A quantitative easing “sugar rush”, as Edel Tully of investment bank UBS puts it, has underpinned the latest surge. As far as the fundamentals are concerned, palladium looks more appealing. Both metals are benefiting from the rebound in the global car industry. And increasingly strict environmental standards bode well for the future. But palladium looks set to profit more from rising car ownership in China and other emerging markets, says Eugen Weinberg of Commerzbank. Vehicles in these countries are mainly powered by petrol rather than diesel. Mined supply and scrap recycling has fallen behind palladium demand. In recent years only Russian stockpiles have kept the overall market in surplus. The total level of these stockpiles is a secret, but according to Russian nickel and palladium producer Norilsk Nickel, they are almost used up. If that’s true – this isn’t the first time there has been such speculation – palladium could rise to $1,000 in the medium term, says Tully.

Platinum has less upside, according to a note by investment bank BNP Paribas. The market is well supplied and the European diesel sector, where platinum use is concentrated, is more vulnerable to a setback in demand than emerging car markets. Actually, both look due for a short-term correction, reckons Weinberg – especially palladium, where much of the good news is in the price. He thinks platinum and palladium could dip to $1,650 and $525 respectively this quarter before bouncing back.