Palladium, the new king of metals

September 2015. The date has been marked in the history of the automotive industry. By that time, the dieselgate irrumpía in the dome business of one of the car

Palladium, the new king of metals

September 2015. The date has been marked in the history of the automotive industry. By that time, the dieselgate irrumpía in the dome business of one of the car manufacturers most powerful in the world: Volkswagen. The German firm had been selling diesel-powered vehicles equipped with a software which manipulated the information on toxic emissions, and triggered the pollution controls only when the vehicle was subjected to tests. Since that time, the scandal has left several impressions on the road, not only in the automotive sector. The setback of Volkswagen also disrupted the market of raw materials and pushed the palladium, a precious metal used in catalysts for gasoline vehicles and hybrids, to reach unprecedented levels: its price started to rise until it becomes the great protagonist of 2019, with a higher price than gold.

at The close of the year, the palladium was the $ 2,000 per ounce (about 1.789 euros, at the current exchange rate), which means an increase of 51.4 per cent compared to January of 2019, and $ 350 above the price of gold. “Your performance has been stellar,” says Georgette Boele, an analyst at ABN Amro. But her rise has not been trivial. For the eighth consecutive year, the material —now with a value three times higher compared to September 2015, after the outbreak of the dieselgate— has a deficit in its supply while the demand has not stopped growing. “The metal has become a crucial piece for the car manufacturers to measure emissions standards around the world, especially in China, have become more stringent,” says Diego Morin, analyst of the markets of the consulting firm IG.

Evolution of the palladium in the Bag

Variation of the value with respect to January of 2019 in %

Palladium

+for 60.9%

60%

+48.9 per cent

40

Gold

+19,6%

+20,3%

20

+17,8%

+14,1%

0

+8,9%

+1,5%

-20

21

mar.

15

aug.

16

dec.

9

jan.

Source: Bloomberg.

THE COUNTRY

Evolution of the palladium in the Bag

Variation of the value with respect to January of 2019 in %

Palladium

+for 60.9%

60%

+48.9 per cent

40

Gold

+19,6%

+20,3%

20

+17,8%

+14,1%

0

+8,9%

+1,5%

-20

21

mar.

15

aug.

16

dec.

9

jan.

Source: Bloomberg.

THE COUNTRY

Evolution of the palladium in the Bag

Variation of the value with respect to January of 2019 in %

Palladium

+for 60.9%

60%

+48.9 per cent

40

Gold

+19,6%

+20,3%

20

+17,8%

+14,1%

0

+8,9%

+1,5%

-20

21

mar.

15

aug.

16

dec.

9

jan.

Source: Bloomberg.

THE COUNTRY

About 85% of this material ends up in the exhaust systems of automobiles, which in their interior have a kind of honeycomb structure impregnated with a resin that contains a minimal amount (but very rich) of precious minerals: rhodium, palladium or platinum, according to Johnson Matthey, the dealer british precious metals. The remaining percentage of the production is used in electronic components, appliances, dentistry and jewelry. “The task of the palladium is essential in the manufacturing of cars, because it helps to reduce the toxic pollutants”, highlights Diego Morin.

Two large producers

Russia and south Africa are the big fans of palladium. Together control a total of 77.4% of the industry. Get the metal as a by-product of operations that focus on other raw materials such as nickel (whose price is falling) or platinum (whose quote is at minimum during the last decade), according to Bloomberg data. So any movement that occurs in the metallurgical industry in these nations has a direct impact on the markets. As happened early last year, when the price of palladium began its path upward to the rumors of a possible ban on Russian exports due to the scarcity of the material.

the price of The metal soared even more when China —the biggest car market on the planet— announced that for this year the cars of new manufacturing shall be equipped with a new standard to reduce pollutant emissions. This implies the adoption of a catalytic converter system more efficient and increased demand for precious materials. In addition, the bullish run was roused after power outages massive in south Africa and fears that are going to burst strikes in the mines that blocked the extraction. “In the event of a strike [which could be carried out this year], the deficit of palladium in the market would be much deeper,” warns Franziska Palms, analyst of the consulting british Capital Economics.

The precious metals used in small quantities by the manufacturers of the cars have had a history of strong ups and downs in the last two decades. Many of them have been caused by the appetite of the speculators. “Since the financial crisis of 2008, palladium has gained popularity as an investment option with a high intrinsic value,” says an analysis of the platform of trading Capital.com. Despite this, the recent rise in the price of this raw material suggests that the industrial demand is genuine, analysts say Reuters. “Car manufacturers are struggling to supply”, it adds in a study Nornickel, the Russian company that dominates the world market with a share of 39%, according to its own data.

For this 2020, it is not expected that the market price of the metal yield. At least that is the forecast of various analysts. Citi, for example, estimates that the price reaches $ 2,500 per ounce (about 2.230 euros), due to a greater demand for cars, gasoline and hybrid in the market. “By 2020, the shortage of palladium will get worse”, say analysts of the giant Russian Nornickel, they expect that the consumption of the protagonist of 2019 is over the production up to 2025.

Less diesel and more gasoline

car buyers acquire larger vehicles and heavy, not only in USA but also in Asia and in Europe, where registrations of diesel have fallen sharply after the scandal of Volkswagen, according to the International Energy Agency (IEA). In 2017, the number of gasoline-powered vehicles surpassed the diesel, for the first time since 2009. In 2018, the vehicle sales of gasoline recorded a penetration rate of 56,7% (6.4 points more than in 2017), while those that work with diesel fuel amounted to a 35.9% market share (from 8.1 points less than the previous year), according to the Association of Constructors of European Automobiles (ACEA). This transition has been accompanied by a rise of 11% in the consumption of palladium in Europe, the third market that more fagocita this metal, after China and north America, according to figures from Johnson Matthey.

Updated Date: 12 January 2020, 17:00

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