The white metals, platinum and palladium, have both cooled this year after their prices surged in 2010. Both metals are close to their early January levels.
But in the longer term there is ample scope for prices to rise from current levels of around $1,830 an ounce for platinum and $770 for palladium. Around half of the demand for each metal stems from the car sector, as they’re used in catalytic converters. Platinum is mostly applied to diesel motors and palladium to petrol engines. “Rapidly industrialising emerging-market economies are… the key source of vehicle demand growth” as their populations get richer, says Longview Economics. The process of “income catch-up with developed economies… has decades to run.”
China has only 32 vehicles per 1,000 people; India 15. In the US and France, the figures are 820 and 600 respectively. Chinese demand is so strong that global vehicle sales have risen by a cumulative 33% in the last decade, says Longview; without China, they would have grown by a mere 5%. China’s muscle in the car sector is especially good news for palladium, as 87% of all light vehicles last year were petrol-fuelled, notes Longview.
On the supply side, markets look set to tighten over the next few years, given the recent “massive underinvestment in mines”, says Walter de Wet of Standard Bank. Palladium is typically mined with other platinum-group metals. In South Africa, the biggest supplier, ongoing power and labour problems and a strong local currency have led to a sharp rise in costs.
But the white metals look unlikely to take off this year. There has been almost no demand for platinum from Japanese car-makers since the earthquake, according to Japan’s biggest platinum refiner, Tanaka Kikinzoku Kogyo. Japan accounts for 15% of global platinum demand. The global platinum surplus could rise eightfold and the palladium deficit could halve, reckons the company. The weakening world economy also bodes ill, given that the two metals are basically plays on global growth. The end of the Fed’s money-printing, ‘quantitative easing’ programme, QE2, in June, also poses a threat to risky assets.