All Eyes On This Very Precious Metal

Palladium is becoming one of the most expensive metals in the world. So, how did that happen?

Last week, the prices of palladium rose to record levels and touched a new all-time peak of $2,891.20. It was only in 2016, when an ounce of palladium costed around $500, but the price has jumped to $2,875.50 an ounce just before the coronavirus struck. Analysts at Citi told Reuters that they are anticipating it to reach $3,200 within three months.

Because of the law of supply and demand. When demand of a product increases but supply remains the same, the price of the product goes up.

Rising demand: The metal is seeing an increasing demand from the auto industry. But why? Around the world governments, notably China, are tightening regulations as they are trying to curb air pollution from petrol vehicles.

The direct emissions scandal in Europe also had an impact in palladium prices. How? In 2015, the Environmental Protection Agency (EPA) found that many Volkswagen cars being sold in American had a software in diesel engines. This software could detect when they were being tested, changing the performance accordingly to improve results. This has led to consumers shifting away from diesel cars to cars with petrol engines.

So, what does any of this have to do with palladium? Because palladium is an important ingredient in petrol engine autocatalysts, and they reduce emissions.

Shortage in supply: The majority of the world’s palladium comes from Russia and South Africa. However, in April 2020, stringent lockdown regulations saw a number of South African mining companies suspending operations as well as production guidance, which led to a jump in palladium prices.

Also, Russian producer Nornickel said that flooding in its mines would cut its 2021 output by more than half a million ounces, which is 5% of global supply. As a result, output is estimated to fall short of demand for a 10th straight year in 2021, writes, Bloomberg. This has also boosted palladium prices.

The rise in palladium prices has given a boost to the shares of platinum companies too. Why platinum? Because most of the palladium is extracted as a by-product in the mining of other metals, usually platinum and nickel.

Below is a chart showing how the shares of the shares of the world’s largest producer of platinum, Anglo American plc has performed against its competitors (i.e) shares of BHP and Rio Tinto, which are the world’s largest mining companies.

The prices of palladium have increased nearly 350% in the past five years, and it might continue to do so if production cannot meet the soaring demand. And, the demand for the precious metal is expected to increase, as the global industrial sector continues to recover. When prices of palladium jumps, the price of all the objects, which has palladium as a key ingredient, will surge as well. So, will the palladium producers be able to meet the demand or will palladium prices continue to rise? We have to wait and see…

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