Platinum vs palladium: Which metal to choose?

The platinum and palladium markets have recovered some of their recent losses as Russian mining company Nornickel (MNODL), the world’s largest producer of palladium, reported lower output in 2021 and the first quarter of 2022. 

The palladium price has dropped from the highs seen in early March, although it remains up for the year to date on concerns about tight supply. But the palladium vs platinum price chart shows that the two metals have diverged. The platinum price remains below where it started in 2022, with the potential for extended Covid-19 lockdowns in China affecting the outlook for demand from the automotive industry.

What is the difference between platinum and palladium as traded commodities? Which one, if either, should you look to invest in for 2022? 

In this article, we look at how markets for the two precious metals have been performing so far this year and some of the latest analysis. 

Russia and China drive PGM pricing

As the two largest platinum group metals (PGMs), platinum and palladium are often used as alternative precious metal investments to the larger gold and silver markets. While they are less liquid than gold or silver, the prices for platinum and palladium can be more volatile, creating potential opportunities for investing in them to make larger potential returns, but also increasing the risk of larger potential losses.

Platinum is predominantly used in the automotive industry for catalytic converters. Demand from the auto industry is an important price driver. The metal is also used in small quantities for important applications across the chemical, petroleum, electrical, glass and medical industries. Platinum jewellery accounts for around a quarter of demand. Investment demand turned negative last year, as investors sold their holdings of ETFs and bought fewer bars and coins than in 2020, according to data from the World Platinum Investment Council.

The surplus on the platinum market grew last year as supply increased by 21% and demand dropped by 9%. According to the World Platinum Investment Council, the market is expected to be in surplus in 2022, with supply outpacing demand, although at a lower rate, with supply dipping by an estimated 1% and demand growing by 7%.

Platinum’s price performance reflected the supply trends, climbing in the first half of 2021 from $1,098 per troy ounce to more than $1,240. It turned negative for the year as the surplus grew in the second half and investment interest waned. The precious metal ended the year below the $1,000 mark at around $970 per troy ounce. 

The platinum price climbed to $1,172 on 9 March, as the market priced in concerns about the impact of the Russian invasion of Ukraine on exports. The metal then shed value and dipped to $906.44 on 27 May before slightly rebounding to 962.41 as of 12 May 2022.

Platinum vs palladium investment

Russia is a major platinum supplier, but the world’s largest producer is South Africa, which accounts for close to 70% of global output. 

The palladium price rose from $2,470 per troy ounce at the start of 2021 and briefly touched the $3,000 level in May before dropping back in the second half of the year to end 2021 at $1,963. The price climbed back above $3,000 on 9 March, reaching a new all-time high of $3,272. But, like platinum, it’s dropped on concerns about the impact of lockdowns in China and on future automotive demand for palladium in catalysts. China has the largest demand for palladium, using 32% of supply mostly for autocatalysts.

The price history for palladium has largely been driven by catalyst demand. The automotive industry accounts for around 80% of palladium use in the form of catalysts, with industrial demand taking up around 18% and investment accounting for the remaining 2%, according to data from refiner Heraeus Precious Metals.

The palladium price fell to the $2,200 level at the end of March but bounced above $2,500 on 11 April after the London Platinum and Palladium Market (LPPM) suspended two Russian government-owned refiners from its accredited list of platinum and palladium suppliers. Bars and sponges (a high purity form of platinum metal) produced after 8 April are not accredited, although buyers can still receive metal produced before that date. Receivers are responsible for confirming that the metal they receive was produced before 8 April, LPPM said.

_{Source: Capital.com
Past performance is not a guarantee of future returns}

With investment interest in financial products for platinum and palladium remaining relatively limited, prices for the two precious metals could continue to react to the outlook for the automotive industry as the main consumer.

Heraeus Precious Metals noted in a recent analysis that over the long term, the transition to electric vehicles around the world, from vehicles with internal combustion engines that use catalytic converters, is set to reduce platinum and palladium demand. 

Given the recent price performance and the differences in the supply/demand balance, is palladium better than platinum as an investment? 

Below, we look at some of the latest price analysis and how a number of analysts view palladium versus platinum.

Platinum vs palladium: How do analysts expect the PGMs to perform?

Analysts at Heraeus saw more potential for the platinum price to fall than palladium. 

“Of the precious metals, platinum has the weakest fundamental support for its price. Supply is far outstripping demand, and the market is currently in a significant surplus (excluding investment) of >1 moz. High inflation would have suggested that investment into real assets would have boosted platinum. However, the interest has not been there for platinum as ETFs have seen outflows of 174 koz (-5%) year-to-date, a continuation of the longer-term trend of retail divestment seen since mid-2021,” they wrote in a recent report.

For the palladium outlook, they noted the importance of Chinese demand: “China is the country with largest demand for palladium as it uses 32% of supply, mostly for autocatalysts. When automotive demand fell off a cliff in 2020 following the original coronavirus outbreak, it did not take long for the automotive sector to bounce back as lockdowns were eased relatively quickly. 

According to the World Platinum Investment Council: “The outlook for 2022 is influenced by the continuation of many of the same themes that dominated the second half of 2021, with the additional overlay of inflation concerns and without the significant additional refined platinum flows from the unwinding of Anglo American’s semi-finished ACP inventory… Investment demand will probably be the most keenly watched part of the platinum landscape as it can provide an indicator of real demand for platinum in the spot market. We’re expecting another strong year for bar and coin demand, but only modest ETF demand, although this is an area within which we could see upside depending upon the outlook for the PGM mining equities.”

Analysts at Australian bank ANZ were bearish in their long-term palladium price forecast, but expected the platinum price to rise from the current level. They predicted that the price could rise to $3,000 by the end of June, decline to $2,500 by the end of the year and $2,300 by the end of September 2023. 

But ANZ’s platinum price forecast had the price rising from $1,200 in June to $1,300 by the end of 2022 and $1,375 by the end of September 2023.

When deciding whether to trade or invest in platinum or palladium, it is important to keep in mind that high volatility in the commodities markets and the strong influence of geopolitical events on prices makes it difficult to forecast prices accurately. Analysts and forecasters can and do get their predictions wrong. Their predictions should not be used as a substitute to your own research. 

Platinum or palladium: Which should you choose?

Is platinum a good investment for your portfolio? The answer will depend on your risk tolerance as well as your investment timescale and portfolio composition. 

Is palladium a good investment? Similarly, your answer to the question will depend on your own investing circumstances.

If you are considering trading precious metals or other assets, we recommend that you always do your own due diligence. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any trading decision. And never invest money that you cannot afford to lose. 

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Make sure you understand how CFDs work. Do your own research and always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money. Keep in mind that past performance is never a guarantee of future returns. Never trade more money than you can afford to lose.

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