Palladium prices increased 20.7 percent in 2016, according to this year’s Platinum Group Metals Survey from Thomson Reuters’ GFMS group. But the same can’t be said for platinum prices.
In contrast to palladium, platinum sank 6 percent last year, dropping below $1,000 per ounce for the first time since 2005. And while Thomson Reuters doesn’t necessarily expect platinum prices to fall further in 2017, it does believe palladium could soon surpass its sister metal in price.
“In our view, it is more a case of when, not if, the palladium price will exceed platinum for the first time since 2001,” said Ross Strachan, precious metals demand manager at Thomson Reuters.
Currently the gap between palladium and platinum prices stands at about $100; that’s compared to an average of just over $1,000 between 2007 and 2012.
Explaining how that gap has narrowed so dramatically, Thomson Reuters notes that “2016 was another year of substantial deficit” for palladium. While both platinum and palladium mine production declined 2 percent last year, platinum demand stayed flat and palladium demand grew by 2 percent.
Palladium demand was largely due to an increased need for autocatalysts, which are used in cars. Most of the demand was driven by China.
Although platinum production was challenged by work stoppages and mine suspensions in South Africa, the market remained in physical balance for the second year in a row. That’s because the drop in mine output was offset by an increase in scrap supply. The amount of platinum jewelry that was recycled in 2016 grew by 3 percent to a historic high.
Demand for platinum also remained relatively flat, though it’s worth noting that less platinum was used for jewelry than for industrial and automotive uses. Platinum demand gained in China and Europe, which made up for weaker demand in Japan and North America.
Despite its prediction that palladium prices will rise higher than platinum prices this year, Thomson Reuters doesn’t believe all hope is lost for platinum. In fact, Strachan believes platinum is starting to recover and will be in deficit this year, “as mine production continues to be hindered by the lack of investment in earlier years.”
“We think that the recent move has been too far and too fast and platinum is set to rally to be above $1,000/oz this year on the back of weak mine output,” Strachan said.
And as for palladium? Strachan concluded, “while the market is susceptible to a short term correction we would expect prices to recover to be in excess of $850 well before year-end.”
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.