Platinum And Palladium Poised For A Double-Barreled Boost
Mon July 15 2024
Platinum and palladium, the stragglers of the precious metals world, are poised to play catch-up as the twin forces of falling interest rates and sluggish electric vehicle (EV) sales kick start investor interest. Oversupply and slack demand have weighed on platinum and palladium, metallic twins which share several properties and markets, including a role in minimizing the emission of noxious gases from vehicles with an internal combustion engine (ICE).
Until recently it was widely believed that a global shift to EVs would slash demand for ICE powered vehicles but that was before consumers failed to respond with enthusiasm. Concerns about the range of an EV, limited charging points, and poor resale value, have hit the EV industry and sparked a revival of ICE and hybrid vehicles which combine battery and ICE technology.
Palladium is the preferred metal in gasoline engines. Platinum is preferred in diesel engines though the two are interchangeable with price a determining factor plus the time taken to make changes in the engine manufacturing process. Hybrid engines also require less metal to scrub their exhaust gases because they have smaller ICE engines.
The revival of consumer interest in hybrids can be seen in the share price moves of Tesla, a pure EV maker, and Toyota which defied early criticism and stuck with its hybrid vehicle offering. Over the past 12 months, Tesla’s share price has fallen by 13%. Toyota is up 46%.
The other major markets for platinum and palladium, jewelry, and investment, have also seen the two metals playing a secondary role to the precious metal leaders, gold and silver. Since the start of year gold has risen by 16% and silver by 28% driven by central bank buying in the case of gold and investor interest in silver as a haven like gold, and a growing use of silver in developing technologies such as solar energy.
Stuck In The Slow Lane
Platinum and palladium, however, have been stuck in the slow lane, weighed down by years of surplus production and sluggish demand. Platinum is selling today for $996 an ounce, up just $1/oz on the price at the start of the year. Palladium is down $135/oz at $977/oz. There are signs that the underperformance of platinum and palladium could be coming to an end with supply stagnant and demand slowly accelerating.
Citi, an investment bank, noted the changing market sentiment for platinum and palladium in a research note published last week and based on information gleaned at Shanghai Platinum Week. The bank is not expecting a sudden surge in prices though “short-term upside is plausible” as the U.S. central bank begins an interest rate cutting cycle. It also warns that the long-term outlook is bearish.
Despite that warning Citi’s supply and demand forecasts are for a shift from high levels of excess supply boosted by recycling of auto catalysts and jewelry with several years of supply deficits expected, boosted by mine closures.
The overall picture is one which has started to lure investors into exchange traded specialist funds holding platinum and palladium. Mutiple factors are behind the new-found interest of investors in platinum and palladium, including the hybrid v EV situation and the almost forgotten status of the two metals as members of the precious metals family with its safe haven status.
When, not if, U.S. interest rates start to fall, perhaps as early as September, it might not just be good news for gold and silver which have already had a good year. Platinum and palladium could be ready to follow the lead of gold and silver with the magnifying effect of rising off a low base.
Source: https://www.forbes.com