Palladium has turned out to be a standout metal in recent days and has outperformed other precious metals, especially gold and silver which are steadily falling.

While strong demand and weak supply have combined to push palladium prices to new highs, the performance of platinum has been somewhat weak.

Platinum prices fell, but surely not as much as that of either gold or silver.

If anything, the price differential between platinum and gold is widening and currently stands at around $200 an ounce. Prolonged strike in South Africa from early this year has provided support from the supply side to the two industrially-oriented precious metals.

Government-driven negotiations have yielded little so far. South Africa accounts for 40-50 per cent of global production in platinum.

Even as supply risks characterise platinum market, for palladium the demand profile is looking increasingly positive.

If anything, technological advances in the automobile sector favour palladium over platinum. Industry representatives claim that (expensive) platinum can now be substituted by (economical) palladium in the ratio of 1:1 in gasoline auto-catalysts versus 1:1.5 previously.

Diesel catalysts are moving towards the 50 per cent mark, according to automobile experts.

Palladium’s price gains are now the focus of market attention. On New York Mercantile Exchange (CME Group), the metal closed at $840/ounce last week, a five-per cent gain compared with $801 a month ago. On the other hand, platinum closed at $1465/oz last week, up from $1418 a month ago and $1461 a year ago.

The palladium market picture is clear with a strong rise in industrial demand as well as investor flows.

On the other hand, platinum has not benefited as expected from the favourable backdrop.

Impact of the strike

While it is unlikely that the strike may not have affected supplies, there is reason to believe that large inventories have been brought in to play. Stock drawdown may have ensured steady supplies, keeping a lid on upward price movement.

Demand side also is not as robust for platinum as that for palladium. However, if the industrial action in South Africa were to continue for some more time, platinum prices will have to rise and demand will be rationed.

With gold prices weaking, the differential with platinum has the potential to move closer to $300/oz.

In the short term, palladium is likely to stay above $800/oz. Of course, the big question that concerns all stakeholders is: what will happen to these prices if the strike in South Africa is settled and production resumes.

(This article was published on June 4, 2014)
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