Platinum Never Cheaper vs Gold But Erases Palladium Price Discount

Platinum Never Cheaper vs Gold But Erases Palladium Price Discount

Friday, 2/09/2024 19:29

2024 forecasts predict big split for PGMs...


The PRICE of PLATINUM has erased its discount to sister metal palladium for the first time in 6 years, but it's hit a new record discount against gold after the PGM metals both fell hard on concerns over 2024 supply and demand.

The 'basket price' of platinum-group metals sank by 38% last year, leaving "roughly half of global PGM mine supply operating at a loss," says specialist consultancy Metals Focus, comparing spot bullion prices with the 'all-in sustaining' measure of mining costs.

But while 2024 output will fall according to speakers at this week's Mining Indaba conference in No.1 platinum producer South Africa as well as to No.1 palladium miner Nornickel in Russia, the projected cuts failed to stop both metals dropping hard in price this week, because demand may fall more steeply on some estimates. 

That would reduce the supply deficit in platinum from last year's record and threaten to create a surplus in palladium.

Chart of platinum price minus gold and minus palladium, last 10 years. Source: BullionVault

Analysts entering this year's LBMA forecast competition on average forecast a  palladium price drop of 20.7% across 2024 from last year's annual level of $1337 per Troy ounce – an outcome they overshot by $472 in their consensus forecast for 2023.

Even the most 'bullish' forecast – given by Peter Fertig of Germany-based QCR Quantitative Commodity Research – predicts an annual average price drop of 6.5%, albeit more than 28% above palladium's 2024 average price to date. 

Platinum, in contrast, finds its most bearish forecast almost in line with last year's level, with Alexander Zumpfe of German refiners Heraeus predicting $950 per ounce, while the most bullish prediction comes 14.5% above the 2023 annual average as bullion bank HSBC's James Steel predicts $1105 per ounce, $100 higher than the consensus.

The most bearish palladium forecast, down at $724 per Troy ounce from Ross Norman of price data and news aggregator Metals Daily, would represent the precious metal's cheapest annual average since 2016.

Forty per cent of current world platinum output goes to meet net demand for autocatalysts – needed to reduce harmful emissions from fossil-fuel engines – with the rest going to jewelry, investment coins and bars as well as  industrial platinum uses across the chemicals, petroleum, electrical, glass and medical sectors.

Palladium in contrast finds over 90% of its demand from autocats, almost exclusively for gasoline-engine systems.

Platinum traded at a premium to the gold price all through the 20th Century, but fell below the 'safe haven' precious metal in 2015 as the "diesel scandal" broke around automakers cheating emissions standards, leading European consumers to switch to buying gasoline cars instead.

Platinum in 2017 then fell below the palladium price, sinking to a $2000 discount as the dearer PGM spiked to record highs when Russia's all-out invasion of Ukraine spurred  expectations for a Western import ban.

Palladium's tighter supplies, price spike and premium to platinum eventually spurred substitution of the cheaper and more versatile metal into gasoline autocats,  raising platinum's auto-sector demand and hitting palladium's even as the long-term outlook worsened for all internal-combustion engine systems amid rising sales of electric vehicles.

Estimates from the World Platinum Investment Council project a market surplus in palladium from 2025, while ongoing substitution, the rise of electric vehicles, and a "surge in secondary supplies due to higher auto recycling...puts palladium on a path of rising surpluses," according to bullion refiners MKS Pamp's Nicky Shiels.

"We are already seeing substitution  slowing down or in some cases stopping," says Nikos Kavalis at Metals Focus.

"It won't be an overnight change, as autocatalyst designs can happen a long time before cars actually come off the production line."

While erasing its discount to palladium this week, the  price of platinum also fell hard in Dollar terms, beating November's  previous record platinum-gold discount with a gap of $1150 per Troy ounce.

"Despite a platinum market in deficit," says consultant Robin Bhar, giving a near-consensus price forecast for 2024 of $1010 per Troy ounce, "the downward pressure from the weakening global economy is likely to keep the price in a similar trading range to last year."

"Major producers have already initiated a halt to the expansion of new projects to contain costs and remain competitive in a market in transition," says Debajit Saha of LSEG business Refinitiv, coming $5 the other side of the LBMA forecast competition's $1015 consensus prediction.

Palladium's consensus view,  given by Bart Melek of Canadian brokerage T.D.Securities with a forecast of $1056 – just $4 below the competition's average outlook – notes how speculators in CME Nymex futures and options have "built a behemoth net short position which notably weighed on prices over the last year" as substitution hit sentiment.

"Demand should post a rebound later in 2024," Melek says, "once China’s economy [improves] and Western macro headwinds stop blowing as [interest] rates moderate...[and as] higher loadings [per autocat] associated with stricter air quality rules across the world...also contribute to the move higher."


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