Palladium and rhodium have outstripped platinum in the past few years. But thanks to the advent of fuel-cell cars, that could soon change, says Dominic Frisby.
The main platinum group metals (PGMs, as they are known) are palladium, rhodium and, of course, platinum itself. They are all precious metals, in the sense that they are both rare and expensive. Indeed, palladium and rhodium are pricier than gold – rhodium, at $5,350/oz, is three-and-a-half times the gold price. Platinum, at under $1,000/oz, is currently cheaper, but this is anomalous.
That said, precious though PGMs might be, they are not monetary metals. Both gold and silver were once used as money; PGMs mostly weren’t. You might buy gold as insurance, as a hedge against monetary debasement or to preserve wealth. One of the most effective ways to store gold and silver wealth is on your person. Jewellery accounts for a considerable portion of gold and silver demand. There is considerable jewellery demand for platinum too. It is beautiful and hard, and so can be used in a purer form than gold, which jewellers often deem too soft in 24-carat form. Around 35% of annual platinum demand comes from the jewellery industry. Palladium jewellery, however, has never really taken off. And as for rhodium, have you seen what it looks like? So while PGMs may be precious, they are largely industrial metals. They are the most efficient catalysts known to science, and their price is determined by the automotive industry. Roughly 85% of palladium and rhodium demand is down to the metals’ use in catalytic converters. Want to know where the price of each is going? Then you need to assess future vehicle demand.
Petrol, diesel or electric car engines?
Palladium tends to be used in petrol engines, although rhodium is the more effective catalyst for tackling nitrous oxide emissions in petrol engines – around seven times more effective than palladium. There is no substitute for rhodium. Platinum’s main use, meanwhile, is in diesel vehicles. It can substitute for palladium in petrol engines, but this only tends to be economic when the palladium price is double that of platinum. If palladium is $2,000/oz, for example, and platinum $1,000, you will start to see substitution take place.
At more than $5,000/oz, the rhodium price is at highs not seen since 2008 and the frenzy of the pre-financial-crisis commodities bubble, when it got above $10,000/oz. Palladium is closing in on $1,800/oz. Every new week seems to bring a new record high. As for platinum, it ought to be more expensive than gold. Historically, it trades at 1.25 times the gold price. If gold is at $1,500/oz, platinum should be somewhere around $1,800. But it isn’t. It is at $950, a long way from its 2008 high at $2,100.
As a result, we are not far off the point where platinum substitution for palladium kicks in.