Why Palladium and Platinum Have Fallen Behind Other Commodities

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Palladium looks after its first annual price drop in six years, and platinum is set to make up for its first loss in three years. Both the metals are defying the overall strength in the commodity sector, which is on track to see its benchmark index score its strongest performance since 2016.

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Trevor Raymond, research director at the World Platinum Investment Council, says the negative impact on demand for both metals, due to a global shortage of semiconductor chips, “heavily impacted investor sentiment and positioning” on the Comex futures market.

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However, Platinum has outperformed Palladium this year. It can be undervalued compared to both palladium and gold. As of December 1, platinum futures closed down more than 13% this year at $935.20 an ounce. Platinum futures rose more than 10% last year for the second year in a row. Palladium futures closed at $1,753.50 an ounce, down nearly 29% this year, which would be the metal’s first annual loss since 2015. Last year, palladium grew about 29%.

This year’s losses for both metals came in contrast to the S&P GSCI, a commodity index composed of 24 exchange-traded futures contracts in five physical commodity sectors, including precious and industrial metals, which traded up more than 27% this year. Has been doing. It is on track for the biggest annual growth in five years.

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Given the paucity of semiconductor chips, which are used in automobile production, and the main use of palladium in catalytic converters for gasoline-powered vehicles, says Raymond, the reduction in demand for palladium “is far greater than that of platinum,” says Raymond. more”. Platinum is used primarily in catalytic converters for diesel cars, and globally there are far more gasoline light vehicles than diesel, he says.

Palladium’s high price contributed to its major losses this year. “The one-for-one ratio of platinum to palladium has become more public, and the resulting reduction in demand for palladium has added to negative investor sentiment,” Raymond says. According to the World Platinum Investment Council’s Platinum Quarterly Report, platinum mining supplies are “gradually recovering” from last year’s COVID-19-related operational disruptions, with total mine supplies climbing 19% this year to reach 8.235 million ounces. is estimated. 24, which is based on the research of Metals Focus.

The report said platinum demand is expected to grow by 14% in the automotive sector and 26% in the industrial sector this year, but investment demand for the metal is projected to see a decline of 86% year-on-year. , Against that background, WPIC forecasts a platinum supply surplus of 769,000 ounces this year and 637,000 ounces next year.

Many of the trends that dominated 2021 are expected to continue next year, the report said, but Raymond warned that there is a “high degree of uncertainty” in the 2022 forecast.

The WPIC report said there is “high confidence” in the expected reduction of 13% in industrial demand from “extraordinary” levels seen in 2021, along with an expected increase of 1% in total platinum mining supply for 2022. But “less certain is the extent to which limits on processing capacity may inhibit growth in autocatalyst recycling later in the year, and to what extent vehicle sales and production will rebound as a solution to the semiconductor shortage.”

Still, Raymond expects palladium prices to remain strong as Chinese automakers buy the metal in the spot market for near-term use, and supply growth is “constrained like platinum.” In addition, a rebound in palladium “could be dramatic if automakers ease supply-chain issues.”

Platinum, meanwhile, “is heavily undervalued compared to its 1-for-1 autocatalyst substitute metal palladium—and gold,” he says.

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