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Correction: Platinum May Never Eat Palladium’s Lunch

by Lobo Tiggre
Thursday, April 04, 03:01pm, UTC, 2019

A very polite—but very firm—industry insider wrote in to tell me I made several mistakes in my recent bearish article on platinum. After checking with independent sources, it does seem that I was misinformed.

  • Diesel engines do tend to run hotter than gasoline engines. However, the catalytic converters with the platinum and palladium go on the exhaust systems—and the exhaust from diesel engines tends to be cooler than for gas engines.
     
  • Palladium—not platinum—works better at higher temperatures.
     
  • Apparently palladium pollution-control devices tend to be placed near the engine, to keep operating temperatures higher. So, carmakers can’t just substitute platinum for palladium in them. Exhaust systems would need to be redesigned.
     

My polite critic also told me that in the years since the switch to palladium, a lot of R&D has advanced the effectiveness of palladium-based devices. That work has not been done with platinum. Due to differences in the metals, even if this R&D were duplicated, platinum may still not be as effective. I wasn’t able to verify this yet with independent sources, but it makes sense to me.

Similarly, the case was made that the cost of the platinum or palladium per car is quite small—not a major factor compared to the consequences of failing to meet ever more stringent emissions standards around the world. This too makes sense to me.

In sum, it may be that no matter how long palladium prices remain above platinum prices, the auto industry may never switch back to platinum to any significant degree.

If so, palladium prices may well remain above platinum prices until the internal combustion engine disappears from our roads.

But that doesn’t mean palladium prices have to go higher—or even stay at current levels.

Independent industry analysts like Johnson Matthey are calling for palladium supply deficits to persist this year. But they also say that recycling is increasing—and no one really knows how much palladium Russia produced during Soviet times is still coming to market. I don’t think we’re at the point where the auto industry is scrambling for supply.
 

What impact does all this have on my outlook?

  • I think palladium prices may well remain above platinum prices for years to come.
     
  • Both platinum and palladium prices remain primarily driven by industrial demand, and their prices remain vulnerable to global economic deceleration this year.
     
  • Both platinum and palladium prices could rise if the US and China announce a new trade deal that spurs optimism for a rebound in auto sales in China. This could happen if the Chinese government’s stimulus actions have the same effect.
     
  • Regardless, I’m not convinced that even such good news would justify palladium’s still quite high prices.
     
  • But with my new awareness of the challenges facing platinum as a substitute for palladium and the oversupply of platinum in the market today, I’m even more bearish on platinum in the near term than before. Longer term, low prices will eventually be the cure for low prices.
     

One more thing…

I didn’t just make up the things I wrote before. I was going on information from a source I trusted. But it’s my responsibility to check the facts in what I write, and I failed in this case.

I apologize.

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