Palladium auto-catalyst demand continues to grow

In earlier posts I’ve highlighted the role that North Macedonia could play in signalling the beginning of a platinum price surge.

Related article: A precious catalyst: A country with a population of just two million offers insights into the market for palladium and platinum

Recall that in 2010 refiner Johnson Matthey opened a diesel auto-catalyst plant in North Macedonia. Unlike other countries that manufacture catalysts we know that North Macedonia only imports platinum group metals (PGMs) for use in that sector. The UK, China and the US are large manufacturers of catalysts but they also have other uses for the metals, i.e trading, industrial, jewellery, etc.

As palladium prices have surged to around $2,600 per oz in recent months, the price of platinum languishes below $1000 per oz. Evidence of a substitution effect away from palladium and towards platinum should be picked up in North Macedonia’s import data.

The latest trade data (December 2019) shows a surge in palladium imports to the highest level since October 2018. Importantly though, the trend towards higher palladium imports (both absolute tonnages and as a proportion of total PGM imports) remains intact.

Chart: North Macedonia PGM imports (kg)

Source: UN Comtrade

This data is probably the best there is showing the relative demand for each metal from the auto-catalyst sector. It’s got a couple downsides though. First, trade data is typically a couple months delayed so this chart is firmly looking in the rear view mirror. Second, we don’t know the degree to which the build-up in palladium imports was an attempt to front-run even higher palladium prices. For example, the manufacturer may want to build up stocks now, even at recent high prices.

Anyone looking to this data to confirm a platinum boom is round the corner needs to bear in mind that auto-catalyst demand represents around 40% of overall platinum demand. Signs of a pickup in platinum demand may be picked up in these other sectors much earlier than in a heavily regulated sector like automobiles.

CPM suggests a reversal of fortunes between platinum on the one hand and palladium and rhodium on the other could be on the cards:

“Platinum has been mired at relatively low prices since 2015, while palladium and rhodium have risen to record levels. Fabrication and investment demand are behind this diversion. They will be behind what could be a reversal here. Palladium prices may plateau around record levels over the next few years, and are at risk should investors who hold large metal inventories decide to sell … someday. Platinum prices may remain weak initially but ultimately are projected to rise sharply, probably making new nominal record highs over the coming decade.”

It’s worth highlighting the role that speculation is playing too. Palladium is seen as an important metal in reducing emissions. In a world where ESG investment has become the prevailing theme, palladium fits that bill perfectly. Edward Meir, an analyst at ED&F Man Capital Markets, said in an interview with Bloomberg that palladium is like:

“the Tesla stock of commodities.” 

Platinum is certainly one to keep a watching brief. But for now at least there is little fundamental evidence that a boom is imminent.

Related article:Platinum boom on the horizon? Not so fast!

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