Platinum And Palladium: Expect The Mean Reversion To Continue

Early this year, I wrote about platinum and palladium. As you recall, palladium was the best performing metal, gaining by more than 40%. It reached a high of $1126 per ounce. On the other hand, platinum had a lukewarm year, seeing just a minor gain.

A little history. Platinum and palladium belong to a class of metals known as the platinoids. The other metals in this class are: ruthenium, rhodium, osmium, and iridium. These metals have several characteristics. First, they are found deep within the earth’s crust. Second, they have high density which makes them essential for use in catalytic conversions. They are also highly resistant to rust and corrosion. They also have stable electric properties.

As such, these metals have a lot of industrial uses. Since platinum and palladium are the main metals in the class, companies are able to substitute them depending on the price.

This is what happened this year. Last year, most vehicle manufacturers moved to palladium, which was a bit cheaper than platinum. Boosted by demand, palladium’s price moved higher while slow demand for platinum stagnated its price.

As shown above, as platinum became cheaper than palladium, its demand rose this year and passed that of palladium, albeit for a short period. YTD, platinum is higher by almost a percentage point while palladium is lower by more than 10%.

Today, platinum is trading at $932 while palladium is trading at $953. Moving forward, expect the mean reversion of the two metals to continue as demand for the cheaper metal rises.