Platinum vs. Palladium: What’s driving auto catalyst switch?
14:00, 7 April 2022
Platinum and palladium are two of the most coveted metals in the auto industry and are members of the platinum group metals (PGM), a six-member family that includes Rhodium, Iridium, Ruthenium and Osmium.
Platinum and palladium are commonly used in catalytic converters to help reduce vehicle emissions, thus making them essential for the transition to a low-carbon economy. Rhodium is also used as a catalyst, however it is extremely rare and much more expensive than the other two.
Platinum/Palladium Ratio Historical Chart
Platinum and palladium ratio chart – Credit: TradingViewPalladium is 15 times rarer than platinum. Despite being very cheap in the 1990's, by 2000, due to a Russian administration issue, it jumped from $200 per troy ounce to $1000 in a few months. The metal has followed a general upward trend since 2017, due to sustained undersupply and stricter environmental laws on auto makers. Between the start of 2019 and 2020, it had gained 77%.
Platinum, palladium and rhodium are considered to be extremely rare and thus quite expensive, which severely restricts their availability and large scale use by most manufacturers. In some cases, auto manufacturers have passed the costs of catalysts to consumers, thus driving vehicle prices higher.
Russia is the world’s largest palladium producer, with Nornickel (MNODI) leading global production. The ongoing Russian-Ukrainian conflict has severely impacted the supply of Russian metals globally, due to numerous transport sanctions.
As of now, Nornickel has managed to secure alternative transport routes for its supplies. However, investors are concerned about additional sanctions being imposed on the country by the global community, if current peace talks with Ukraine do not progress satisfactorily.
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Why have auto manufacturers long oscillated between platinum and palladium?
Auto catalyst metals have been largely determined by the availability, durability and price, as well as stricter emission standards. This has led auto manufacturers to make several switches in the past between palladium and platinum, depending on which metal was cheaper and more easily available at a specific time.
Around 40% of platinum demand comes from this sector. This number is considerably higher for palladium, at about 80% of total demand and even higher for rhodium, at approximately 90% of total demand.
Platinum has been favoured as the auto catalyst of choice since the 1970’s. However, palladium replaced it in the 1990’s due to the metal being seen as having little to no value as it was largely a byproduct of copper and nickel mining.
This led to a large amount of palladium automatically being stockpiled in Russia, due to the country being a large producer of nickel and copper. In a few years when palladium became even more valuable, demand increased substantially, boosting Russia's influence on the world market.
Palladium has seen considerable volatility in the past few months, with a number of surges, as tensions mounted between Russia and Ukraine. Investors were concerned a conflict would trigger global shortages, which would lead to even higher prices.
During this time, platinum resurfaced as the auto catalyst of choice, as palladium prices steadily rose beyond the reach for most manufacturers.
Platinum or palladium: Which is better for auto catalysts?
Platinum, palladium and rhodium are desirable auto catalyst materials due to their high heat resistance, durability and hardness. Hence there has been significant debate regarding whether palladium or platinum are better for this purpose.
The answer depends mostly on the catalytic efficiency of either metal, which is measured by specific emissions, depending on fuel type, engine temperature and fuel quality. For diesel engines, platinum is usually seen as a better choice, as they run at a lower temperature than gasoline engine.
However, it all comes down to cost at the time of manufacture along with region and availability. Some areas may face considerably more supply chain constraints than others, largely limiting their use of a metal, even if that is the cheaper option.
Currently, China is the world’s largest platinum consumer, accounting for around 56.6 metric tonnes in 2020, with Europe being a close second, with about 50.5 metric tons, according to Statista.
When it comes to palladium, China and the US are the top consumers, with 31% and 20% of global consumption shares respectively, Statista says. These two countries also have the largest auto production global market shares.
Which metal is likely to be the long-term favourite?
It is unclear as of now which metal is likely to be favoured in the long run. It largely depends on how the Russia-Ukraine conflict plays out, since that will heavily influence supply chains and the availability of both platinum and palladium in different regions.
With inflation rising, demand for vehicles is down, which will be a major concern for auto manufacturers in the near future. Hence, the cost of catalysts will be an influential factor.
As of now, platinum has a slight edge over palladium, since it is still less than half the price. However, this could be due to the fallout of the Russian war, and could balance out in the short term.
With emission standards also tightening, as well as consumers becoming more environmentally conscious, the focus is slowly shifting from gasoline and diesel engines to electric vehicles.
This could potentially impact demand for both platinum and palladium, which have traditionally been used to control emissions in gas and diesel engines. In such a case, both metals may see a decline in demand, in favour of other metals, such as nickel, cobalt and lithium, which are more commonly used in electric vehicles.
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