Why you should buy palladium and sell platinum

Platinum has gained 63% over the past year but now it could be palladium’s turn to shine.

Palladium and platinum, two “cousin” metals and both part of the platinum-group metals (PGMs) on the periodic table, are used in catalytic converters and other industrial applications. Palladium is trading around $2,670 an ounce, with platinum on $1,177 an ounce. 

Analysts at Citi think palladium could hit $3,000 by the third quarter of this year, says Jack Denton in Barron’s. A surge in catalytic-converter demand as many countries tighten emissions standards should lead to a sizeable global deficit in the metal this year and next. Russian producer Nornickel says problems at two of its Siberian mines will mean 15% to 20% lower production of PGMs than planned this year. Russia is the world’s largest producer of palladium and the second in platinum after South Africa.  

The two metals are set to trade in opposite directions, says Adam Hoyes for Capital Economics. Platinum is used more intensively in diesel catalytic converters, but demand for diesel vehicles is falling as Europe has shifted towards petrol cars, which use more palladium. While palladium is essentially an industrial metal, platinum is also affected by investment demand, which may be about to fall back on rising US bond yields. Hoyes thinks palladium will hit $2,800/oz by the end of next year, but reckons platinum will fall to $800/oz by then.

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