Palladium Leaves Gold Behind in December 2018
On December 5th, 2018 the price of palladium topped gold to end a 16-year trend of failing to trade at a sustained premium to the world's favorite yellow precious metal. A December 5th article at Bloomberg reports that palladium for immediate delivery climbed as much as 2.4 percent to a peak of $1,261.70 an ounce, while gold went for just $1,238.16 or .01% lower.
This was the latest in a sustained demand-fueled hot streak for palladium where prices have hit successive record levels over the past 4 months. According to Bloomberg Intelligence, palladium will continue to be the precious metal most in demand in 2019 when it will "continue to benefit from strong fundamentals."
Palladium Demand and the Green Effect
At Resource Erectors, we've been tracking the "green effect" on industries and markets across the board for some time now and, once again, we're seeing the ubiquitous environmentally conscious trend having an impact in yet another sector. This time it's the precious metals market.
Palladium is a key component for automotive smog control technology where it's used in autocatalysts to reduce emissions for cleaner air. The strong fundamentals driving the scramble for palladium are found in the ambitious emissions control standards set by governing authorities around the world including the European Union and China. The EU is bound to a target of reducing emissions by 40% from 1990 levels by the year 2030. China is shooting for a 28% reduction from their 2005 emissions levels.
This comes at a time when consumers are shunning diesel power in favor of more gasoline powered vehicles which require substantially more palladium for autocatalysts. This means the supply of palladium is likely to fall short with a deficit of another 1.4 million ounces in 2019 on top of the 2018 shortfall of 1.2 million ounces which has already driven the metal to record highs.
Consequently, this has led to a market for palladium where "People are scrambling for whatever material they can get," according to Tai Wong, the senior precious metals trader at BMO Capital Markets. If we consider that the automotive industry accounts for 75% of demand for palladium, we may find that its sister "white gold" metal may benefit as well in 2019.
Palladium, Platinum, and the Automotive Industry in 2019
As a report from August 2018 at Mining.com pointed out, "precious is relative" when it comes to the automotive industry and palladium or platinum. Platinum and palladium are both members of the Platinum Group Metals, PGM, and they tend to co-occur in ore deposits. Both metals share chemical origins and have inherent characteristics. Both are relatively inert and both have high melting points which make them the preferable industrial metals of choice as catalysts for industrial and automotive applications.
When PGMs are used in catalytic converters, they catalyze high-temperature reactions which they can endure without being consumed or losing effectiveness over time. Platinum performs better for diesel applications, and palladium has been preferred for gasoline power since it has traditionally been available at a more affordable price per ounce. Since the "Dieselgate" scandal, caused by manipulation of diesel emissions, the diesel market has taken a significant hit in sales, which was the chief depressing driver in the platinum market.
But platinum could now see a comeback for use in gasoline-powered vehicles when automakers use the lowest priced PGM as the benchmark for catalyst choice. As Mining.com shares, auto manufacturers are also concerned with the surety of supply, and in the midst of the Palladium Rush of 2019, platinum may now be the surest bet.
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