Palladium Spikes to All-Time High: The Long View

And it sure took a looong time.

Palladium, a soft silver-white metal used largely in automotive catalytic converters but also in many other applications including dentistry, spiked to an all-time high today, at the moment I’m writing this, to $1,143 per ounce in the spot market (historic data via Macrotrends).

The prior all-time high was $1,126 on January 4, 2018. From June 2016 through January 4, 2018, palladium had more than doubled. The story was that there were “fears of a supply crunch in recent months,” as the Financial Times posited back then. “Aided by a weaker dollar, which makes the metal cheaper in foreign currencies, strong global growth and a buoyant car market,” the FT wrote at the time.

Upon which the price of palladium plunged. By the end of July, it was down 22%. But since then it bounced again, and so here we are, with a new high.

If palladium drops again in a major way, the chart above will form an ugly double-top.

A double-top will be particularly ugly given the long-term look – going back 20 years – of palladium, with the January 2018 high having finally taken out the high of $1,083 of February 1991. In other words, it took 17 years to get there (chart via Macrotrends):

But I am not a diehard adherent to technical analysis. The fundamentals might be more important. And the fundamentals are mixed, so to speak.

Globally, about 80% of palladium is produced by top producer Russia and South Africa. They’re followed by Canada and the US. Another source of supply is the palladium from recycled catalytic converters.

In terms of demand: About half of the palladium supply is used by the automotive industry in catalytic converters. That’s where the “mixed” part comes in.

Year-over-year, new-vehicle sales (in terms of deliveries, not dollars) have been declining in the US for two years; they started dropping sharply in China this summer; they’re down a smidgen in Canada so far this year; in the EU, sales inched up this year, but in September plunged 23%, which woke everyone up. So demand from the auto industry may not be that hot going forward.

And then there are electric vehicles. In terms of auto production, EVs are gradually making inroads, including in China, the largest market in the world. EVs are not using catalytic converters.

So I wouldn’t necessarily bet on a lasting supply shortage to drive the price much higher. And looking at the chart by squinting just right, I see something that makes me think that now might not be the perfect entry point to ride palladium all the way into the stratosphere. 
 

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  33 comments for “Palladium Spikes to All-Time High: The Long View

  1. raxadian
    Oct 23, 2018 at 1:55 pm

    So is better to just ignore Palladium unless they start to use it on Cellphones or something?

    Also even overpriced smartphones are using less rare and precious metals. Oh and they using more and more glue.

    Maybe I dunno, invest on glue? Not that I think there is profit on that with the Smartphone market beig saturated and only cheap cellphones having chance to grow.

    • Erle Hansen
      Oct 24, 2018 at 11:49 am

      Pd is nearly always associated with Nickel in mining. Norilsk Nickel is the largest producer that was built by Gulag labor in horrid conditions of the Soviet Union. The slave laborers got nothing from the “privatization” of the mines and astonishingly polluting refineries. Thank Al Gore for a big hand in that. (18 billion USD went mostly missing in aid to the post soviet state).
      Pd is easier to buy than other platinum group metals.
      My deal was to buy 200 ounces of Rhodium sponge from either Hereaus or Johnson Matthey. Neither took my purchase seriously so I lost interest. That was at USD645./oz and it is somewhat off the recent peak, and now at 2280. Not bad for less than two years.
      FWIW, Rhodium nearly broke Ford Motors when some dumbasses paid over USD9000.00/Toz for it in the early 2000’s.
      Got VOL?

  2. jon
    Oct 23, 2018 at 2:08 pm

    I can see EVs becoming more and more popular over time.

    what is the element(s) in EV batteries which may be in high demand in next few years because of more EVs ?

    • Weary Patience
      Oct 23, 2018 at 3:07 pm

      Cobalt and or lithium. Nickel and or Cadmium. Lead. Zinc. Sodium. (mainly the first two)

      • alex in san jose AKA digital Detroit
        Oct 23, 2018 at 8:05 pm

        I’m familiar with palladium being used in electrical contacts, like in relays.

        • Erle Hansen
          Oct 24, 2018 at 11:52 am

          Silver is non-arcing and is a better conductor an a whole lot cheaper. We still have silver contactors in machine tools that are sixty years old.

      • raxadian
        Oct 24, 2018 at 6:33 am

        Smartphones and electronics in general are using less and less rare and precious metals. Just listen to all the complaining smartphone mines (aka they “mine” discarted smartphones for rare and precious metals) are doing.

    • Nat
      Oct 23, 2018 at 3:08 pm

      Currently the key limiting element for those batteries is lithium, but lithium isn’t exactly rare. Lithium is estimated to be about 18,000 times more abundant in the earth’s crust then gold and 30,000 times palladium. Lithium’s abundance in the earth’s crust is just below the abundance of the least common among “rock forming” elements (i.e. the elements that form the rocks you just see laying around everywhere for free). Most of the components of the standard formulation these batteries are fairly common relative to how much you need to make these batteries, usually it is: carbon, phosphorous, oxygen, lithium and iron. Admittedly world yearly lithium production by tonnage is pretty light compared to most other industrially used metals, so there may be money to be made while lithium production is still being ramped up due to increasing lithium ion battery demand. But once lithium production comes up to “cruising altitude” relative to its fairly limited demand almost entirely for batteries there won’t be much money to be made with something so common.

      I don’t know maybe invest in phosphorous? It is the second rarest element in the list above after lithium. Although phosphorous is like 1000 fold more common then lithium in the Earth’s crust, unlike lithium phosphorus is actually an element with a massive amount of different uses well beyond batteries, and by some accounts it is getting “mined out” with reduced world-wide production capabilities postulated for the future.

    • Unamused
      Oct 23, 2018 at 3:52 pm

      Novel battery technologies continue to evolve, and some of those promise to outcompete fossil fuels on energy density and cost by wide margins.

      https://phys.org/news/2018-10-catalyst-high-energy-aluminum-air-batteries.html

      Unfortunately, these techs, like others before them, are virtually certain to be very effectively limited by vested carbon-fuel interests, if not suppressed entirely. It’s too late for green techs to save you anyway: the known contributors to the present ongoing mass extinction event continue to accelerate. Worse, additional ones are identified every few weeks, and any one of those is potentially so serious it could finish the job faster than you can say Tralfamadore, so it’s just as well that the effects of terminally negatory ecological factors on issues of finance and investing aren’t considered here. I myself wouldn’t bother trying to figure out how to short palladium futures, but that’s just me.

      • max
        Oct 23, 2018 at 6:25 pm

        Electric Vehicles Aren’t Taking Over Our Roads as Fast as Hype Artists Claim

        Both the rate of EV adoption and the environmental benefits the vehicles will produce have been oversold

      • Joe Banks
        Oct 23, 2018 at 7:07 pm

        There are many “novel” replacements with “promise” out there. EVs lost to ICE over 125 years ago and there was a reason for it. I pulled into work this morning and there was a guy with an EV struggling to hook up his car to the charger. You have to be kidding me, you can’t drive to work without having to charge your car? I fill up once a week, it takes me 4.5 minutes. Ridiculous.

        • Oct 23, 2018 at 8:30 pm

          No one forces you to buy an EV. Stick to your ICE car. Let others buy EVs.

          They’ll charge it while sleeping at home or while sitting at their desks. Saves them a trip to the gas station.

          If that doesn’t work for you, keep buying vehicles that you can take to the gas station to put $50 to $100 of gas into :-]

        • Dmitry Vakin
          Oct 30, 2018 at 9:18 am

          Also, to be clean, you need to replace at least half of the global power generation capacity. Hundreds of billions will need to be invested to roll out charging networks and to improve power networks that supply them. Dozens of billions will need to be invested in mining metals needed for EVs and many billions more in battery factories and facilities that would then recycle them. And all that on top of those “2 billion a week” that automakers spend on R$&D. Well, someone will have to pay for all this.

          And what comes out of all this – a car with highly sophisticated electronic that will need to be scrapped after the first serious accident.

    • Kent
      Oct 23, 2018 at 4:06 pm

      Cobalt.

      • Gandalf
        Oct 24, 2018 at 3:01 am

        Cobalt is the latest conflict mineral, like the blood diamonds of 20 years ago, with half to two thirds of the world’s mined cobalt produced in the Congo, where armed militias fight over control of the cobalt mines.

        All to get the cobalt needed for the lithium batteries in our phones and now the EVs

    • socaljoe
      Oct 26, 2018 at 10:15 pm

      I am long EV’s through coal, natural gas, and uranium… ARLP, HNRG, EPD, and CCJ.

  3. OutLookingIn
    Oct 23, 2018 at 3:09 pm

    Another reason for the recent climb to a new high is a flight to safety, by the so-called “smart money” into tangibles.
    Taking into account that the CDS Index now shows the highest volume in the past five years. And that the SMART Money Flow Index is at a level last seen during the 08-09 crash. On top of the TICK Index plumbing a new negative level.
    Taken together with other fundamentals, these portend a flight to safety.
    What does the market “see” that most are blind to? Don’t stand on the track when the train is quickly speeding towards you!

  4. Jack P Lifton
    Oct 23, 2018 at 3:15 pm

    Note please that fuel cells, which use palladium as a catalyst to convert hydrogen to water thus releasing electrons are very much on the radar of the heavy freight truck (Class 8) industry, because they can be fueled (recharged)rapidly unlike batteries. Many real and experienced makers of such freight haulers are rolling out fuel cell powered units now and in the very near term. Unlike Tesla these long established manufacturers know their markets and react to them rather than telling them what they “must” do. The palladium freed up from exhaust emission catalytic converters will fit nicely into the product lines of the freight haulers’ fuel cells. This new “demand” may well be what is firming the palladium price.

    • safe as milk
      Oct 23, 2018 at 3:41 pm

      fuel cells… hah! the technology that is always right around the corner. :)

      i lost a fortune on fuel cells by my early investment in ballard power.

      despite this i still believe in the technology. it makes a lot more sense than batteries.

      i tend to be right but early when it comes to technology. it failed for me with ballard but my other early1990s tech investment was apple so on balance, it worked out. :)

      • Harrold
        Oct 23, 2018 at 4:21 pm

        “fuel cells, which use palladium as a catalyst to convert hydrogen to water”

        I remember a lot of stories about this 10 years ago when palladium was at its 27 year low….

        • Erle Hansen
          Oct 24, 2018 at 11:56 am

          You bet, Pd was the catalyst for Cold Fusion.

    • HB Guy
      Oct 23, 2018 at 11:22 pm

      Jack P Lifton, the vast majority of fuel cells use ~ an ounce of platinum (Pt), not palladium.

      I’m curious to know Wolf’s views on Pt, which has been in a downtrend since 2010 despite diminished supplies in South Africa as a result of price and the extreme depths from which it now has to be mined.

  5. Kerry
    Oct 23, 2018 at 3:17 pm

    27, not 17, years.

    • Kerry
      Oct 23, 2018 at 3:19 pm

      Oh, date should have been 2001 and not 1991. 17 years actually correct…

      • Oct 23, 2018 at 8:21 pm

        Thanks. I was starting to question the reliability of my 10-finger counting system :-]

  6. Bernard
    Oct 24, 2018 at 12:58 am

    I haven’t been watching the price of palladium too closely, but I’m surprised to see it this high. I think about 8-10 years ago, car makers started using palladium instead of platinum for catalytic convertors because it was much cheaper (something like $500/oz vs 1500-2000/oz for platinum). Now platinum is in the 800 range, while historically (I think), it was priced at a premium to gold (and was until the PM bear hit platinum as bad as silver), never mind palladium. What are your thoughts on this Wolf? Any idea why the prices are so out of whack? Or were they out of whack before? Will car makers start switching back to platinum now that it’s cheaper? Thanks!

    • monday1929
      Oct 24, 2018 at 4:54 pm

      Historically “out of Whack”. Platinum can substitute for Palladium more readily than other way around. And Rhodium soared partly because it is by-product of Platinum mines, many of which are shutting down.
      Disclosure: I cut my teeth in the NY Merc Platinum Ring. I have a large and building PPLT position. If Silver drops to 10.00, Platinum may see 500.00 per oz., but I do not believe it will stay there for long.

  7. rj
    Oct 24, 2018 at 5:51 am

    Silver is the gift here.

  8. monday1929
    Oct 24, 2018 at 4:31 pm

    I have been selling sppp (ETF which holds platinum and Palladium) and moving into PPLT- Just holds Platinum. Platinum is trading well below cost of production, which means little short term.
    The only time I ever made money trading a “fundamental/news story” was when running a metals trading desk in late 80’s when cold fusion story broke. Pd is/was so little known to most and information was just a bit slower then, so I beat the crowd by half a day.

  9. Al Havermann
    Oct 26, 2018 at 5:12 am

    Graphite and various combinations are being experimented where the panels of the car are the batteries. Some work in this area by Volvo.

  10. Foxx
    Oct 27, 2018 at 10:43 am

    I find the fears of Russia cutting supply comical, to say the least. Russia rarely ever did that with any commodity. And most of thur miners are owned by private owners (oligarchs) who are more likely to expand output into these prices than to restrict it?
    These prices do not make sense, but then again, the people who keep buying here may know something that I don’t.

    • Oct 27, 2018 at 6:34 pm

      The Gokhran stock pile in Russia has been run down years ago already. When the Diesel scandal in Germany cut into Pt demand and boosted Pd demand, mine sequencing at Norilsk had just entered an area with poor Pd grades (it’s just a by-product of their Nickel production). So push came to shove, but politics have nothing to do with it.

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