The price of palladium has more than tripled since mid-2018, and the rally seems to be coming to an end as demand goes against the wind.
About 85% of the world's silver metals supply catalytic converters for reducing pollution in gasoline engines. However, soaring prices and technological advances have made carmakers find cheaper platinum more attractive. However, palladium faces an existential threat as electric cars gradually replace gasoline-powered cars, which means the current rebound is likely to be the last.
In the past few years, palladium has beaten platinum and gold, other major precious metals. It benefits from stricter emissions standards in China and Europe and the withdrawal of diesel-powered cars that use platinum in catalytic converters after the 2015 Volkswagen emissions fraud scandal. Palladium production comes mainly from Russia and South Africa-and although mine production has been trying to keep up, there is still a severe supply shortage.
This caused palladium prices to soar above gold and platinum, and palladium really took off in 2018, jumping from $834 an ounce in August of that year to more than $3,000 in May 2021, then falling back to around $2,640.
The trimetal catalyst technology developed by the German company BASF, which produces automotive catalysts, has promoted the increased use of platinum in gasoline engines. The technology allows partial replacement of palladium with platinum and will introduce small vehicles in 2022 and 2023.
David Jolly, head of sales and market insight at Anglo American, a global mining company, says platinum is starting to be replaced by gasoline catalytic converters, which will bring palladium back from its basic supply shortages and closer to balance.
However, despite the imminent threat, most analysts still believe that the palladium rally still has some room to rise before it enters a long-term decline.
UBS expects palladium to rise to $2900 an ounce by the end of the year and then fall to $2500 by mid-2022 as platinum substitutes increase.
HSBC expects palladium to average $2740 an ounce this year. Then it will fall to $1190 within five years, when it will be cheaper than platinum.
CITI said in mid-July that it expected palladium to rise to $3200 an ounce within three months and that platinum substitutes were not expected to become large-scale until 2023 or 2024.
Suki Cooper, a precious metals analyst at Standard Chartered Bank, said the average price of palladium should be $2790 an ounce in the next few years, $2625 an ounce in 2022, and then fall to $2200 in 2023.
Cooper said the recovery in car production after the pandemic and stricter emission standards will support consumption in the short term. Supported by planned development, mine production will pick up, coupled with a slowdown in demand, which will bring palladium closer to equilibrium over the next five years.
Kwasi Ampofo, an analyst at BNEF, said demand for palladium will increase in the short term because of stricter emission regulations and higher passenger car sales. However, by 2025, with the increasing share of new energy vehicles in the market, the demand for palladium is expected to decrease gradually.
