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How #palladium’s rally is setting #platinum up for a comeback $ $ $ $

Posted by AGORACOM-JC at 11:44 AM on Monday, February 5th, 2018

  • Palladium futures PAH8, -1.30%  climbed by more than 55% in 2017

By MyraP. Saefong

As palladium prices soar to new records, platinum deserves to get a closer look from investors.

Palladium futures PAH8, -1.30%  climbed by more than 55% in 2017. But the metal’s price rise, “together with concerns regarding availability, have led some auto makers to consider replacing palladium in gasoline cars with platinum, which can be used at a one-to-one ratio,” says Will Rhind, CEO of fund management company GraniteShares. “This could result in a modest decline in palladium demand, but a significant increase in platinum demand.”

His firm recently launched a physically-backed platinum exchange-traded fund in the U.S. — only the second such U.S.-listed investment offering. The GraniteShares Platinum Trust PLTM, -0.57%  began trading on Jan. 22. The new fund arrives on the scene just as platinum looks ready to play catch-up with palladium. Platinum futures PLJ8, -0.04%  finished off last year with a rise of less than 4%.

Year to date, however, platinum futures were up nearly 7% as of Friday, compared with an almost 2% loss for palladium futures. Platinum closed Friday at $999.40 an ounce, versus palladium’s $1,044.95 an ounce.

“We think the rally in palladium seems to have peaked for the time being,” says Rhind.

Palladium has climbed to never-before-seen levels because of tight global supplies and its use in pollution-control catalytic converters in gasoline-powered vehicles.

“Platinum and palladium have very different demand profiles, with palladium demand dominated by its use in emissions control in gasoline cars,” says Rhind. “The global growth in gasoline vehicles has supported palladium demand and price has reflected this.”

Car shiftThe automotive sector shifted away from platinum a number of years ago because it was more expensive than palladium. But with platinum trading at a discount to palladium since October of last year—for the first time in roughly 16 years—platinum may now look somewhat more appealing to the auto industry.

“Platinum is the better metal from a utility standpoint, but higher prices forced the switch,” says Tyler Richey, the co-editor of the Sevens Report. Now that platinum is cheaper than palladium, “we should see the opposite occur.”

That sort of shift, however, doesn’t happen overnight, he says.

Chris Gaffney, president of World Markets at EverBank, agrees. “Shifting the production lines is not something which is easily done for these massive manufacturing companies. Many of these major automobile manufacturers have a long-term goal of switching to all electric-power plants, so spending money to switch from palladium back to platinum may not make sense,” he says.

Either way, Gaffney sees platinum outperforming palladium this year.

“Platinum has not kept pace with palladium and should revert back to trading at a premium, especially if we start to see catalytic-converter companies making the switch back to platinum.”

Check out: How lithium and cobalt are getting a boost from Tesla, Apple batteries

Demand climbPlatinum also doubles as a precious metal, and it’s expected to get an additional lift from jewelry demand, which should “rebound and accelerate” this year, says Richey.

The World Platinum Investment Council (WPIC), which helped GraniteShares fund the development and launch of its ETF, forecasts a 2% rise to 8.03 million ounces in overall platinum demand for 2018, compared with 2017. Total global supplies of the metal are expected to fall by 1% this year to 7.755 million ounces, leaving a shortfall of 275,000 ounces.

The WPIC also forecast a climb in global platinum jewelry demand of 3% this year, which would mark the first annual increase since 2014. “Platinum is a metal with a very wide industrial application base, but it is also a precious metal and a store of value,” said Rhind.

Gaffney says that by year end, it’s reasonable to expect platinum prices to be at $1,250 an ounce, with palladium a bit lower than that at $1,200 an ounce. That would imply a 25% rise in platinum prices from Friday’s settlement.


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