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Why Palladium Is Suddenly the Most Precious Metal

Palladium is now the most valuable of the four major precious metals. Here's why.

Why Palladium Is Suddenly the Most Precious Metal
Palladium wedding bands are displayed for a photograph in a Fortunoff store in New York. (Photographer: Daniel Acker/Bloomberg News.)

(Bloomberg) -- Palladium is now the most valuable of the four major precious metals, with an acute shortage driving prices to a record. A key component in pollution-control devices for cars and trucks, the metal’s price doubled in little more than a year, making it more expensive than gold.

1. What is palladium?

It’s a lustrous white material, one of the six platinum-group metals (along with ruthenium, rhodium, osmium, iridium and platinum itself). About 85% of palladium ends up in the exhaust systems in cars, where it helps turn toxic pollutants into less-harmful carbon dioxide and water vapor. It is also used in electronics, dentistry and jewelry. The metal is mined primarily in Russia and South Africa, and mostly extracted as a secondary product from operations that are focused on other metals, such as platinum or nickel.

2. Why is it getting more expensive?

Supply hasn’t responded to growing demand. Usage is increasing as governments, especially China’s, tighten regulations to crack down on pollution from vehicles, forcing automakers to increase the amount of precious metal they use. In Europe, consumers bought fewer diesel cars, which mostly use platinum, and instead chose gasoline-powered vehicles, which use palladium, following revelations that makers of diesel cars cheated on emissions tests.

Why Palladium Is Suddenly the Most Precious Metal

3. Why is supply so tight?

Palladium’s status as a byproduct to platinum or nickel mining means output tends to lag price gains. In fact, the amount produced is projected to fall short of demand for an eighth straight year in 2019. That’s helped drive prices to successive records. While some obscure metals are still more valuable, palladium traded above gold for most of this year.

Why Palladium Is Suddenly the Most Precious Metal

4. Are speculators driving up the price?

Partly. Since August 2018, hedge funds have increased bets that prices will rise. Yet palladium for immediate delivery trades at a premium to material for delivery later, suggesting manufacturers are scrambling for supply. And palladium-backed exchange-traded funds saw net-outflows this year as investors withdrew metal, then leased it to users at lucrative rates. There has also been anecdotal evidence of stockpiling in China, the biggest buyer in the automotive sector.

5. Who are the winners and losers?

While Russia’s MMC Norilsk Nickel PJSC is the biggest palladium producer, the rally is especially good news for South Africa’s platinum miners, who dig it up alongside their primary metal and are dealing with platinum prices hovering near decade lows. On the other hand, carmakers are having to pay more for the metal and may eventually pass the increase on to consumers.

6. Is palladium usually this volatile?

Yes, and not just palladium. Precious metals used in small quantities by the auto industry have a history of price spikes when demand outstrips supply. In the decade following 1998, platinum soared more than 500% as a shortage caught the attention of speculative buyers. Rhodium rallied more than 4,000% over a similar period before carmakers found ways to use less. Palladium itself jumped ninefold from its lows in 1996 to a peak in 2001 as users worried Russian sales would slow.

7. Can automakers use an alternative?

It’s true that palladium’s rise relative to platinum might prompt some carmakers to work on substitution. However, it’s uncertain when a switch will happen. Research into the use of platinum shows that technological advances are needed before it can match the performance of existing palladium-based catalytic converters, according to Johnson Matthey Plc, which makes the devices. Analysts have said it could take up to 18 months to incorporate a switch. And the likes of Daimler AG are more focused on electrification and batteries than a metal that represents a relatively small part of costs.

8. Where do electric cars fit into the picture?

Electric cars don’t burn fuel, don’t have exhaust pipes and don’t use palladium. Still, most analysts believe the electrification of the majority of the world’s automotive fleet is many years in the future. In the meantime, palladium use in hybrid vehicles is also a growing source of demand.

The Reference Shelf

  • The history and science of palladium.
  • Bloomberg Businessweek’s special issue: Elements.
  • The market outlook from autocatalyst-maker Johnson Matthey.
  • Bloomberg Intelligence data on palladium and platinum.
  • More on Chinese demand for palladium.
  • A QuickTake on how the mining landscape in South Africa is changing.
  • Carmakers cheated on emissions tests -- here’s the impact on palladium.

--With assistance from Ranjeetha Pakiam and Grant Clark.

To contact the reporters on this story: Eddie van der Walt in London at evanderwalt@bloomberg.net;Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net

To contact the editors responsible for this story: Liezel Hill at lhill30@bloomberg.net, Nicholas Larkin

©2019 Bloomberg L.P.