Palladium prices plummeted 39 per cent in 2023 as price spikes in 2018-2022 led the automotive industry to start replacing palladium with cheaper platinum in automotive catalysts. And as of 8 February 2024, the spot palladium price fell to $869.6 per ounce, while the spot platinum price trading at $874.5 per ounce.
The last time the palladium price was lower than the platinum price was five years ago, in April 2018. And behind the price reversal lies a series of dramatic changes in the palladium market.
Industry data shows that the automotive catalyst sector accounts for 80 per cent of total demand for palladium. And with no exhaust gas treatment system even needed in a pure electric car, the outlook for palladium’s use has deteriorated further as electric vehicles have become more commonplace, says Henrik Marx, head of precious metals trading at Heraeus, adding that shrinking demand has predictably put pressure on prices while supply has remained essentially stable.
Citibank noted in a recent research note that any big supply-side event could drive a spike in palladium prices due to a lack of liquidity. However, such a rally should be an opportunity for producers to increase their hedging positions and speculators to establish new short positions, as the long-term outlook for palladium prices remains very negative.
It is important to note that most palladium minerals are put together with other metals to produce, which limits the ability of producers to slow down palladium production even if the market price is below their costs. Globally, South Africa and Russia account for 80 per cent of palladium mining, with the remainder mainly mined in North America. And Nornickel, Russia’s main palladium miner, said palladium production will be slightly reduced this year, but there are no plans for further cuts.
Meanwhile, sources at a major miner told Reuters that palladium mines in South Africa and the United States would not stop production this year either.
As palladium prices have fallen, two South African producers have announced a subsequent decline in earnings. Impala Platinum reported that profits could fall by more than 85 per cent in the second half of its financial year and wrote down the value of assets in South Africa and Canada. Anglo American Platinum, on the other hand, said profits for 2023 fell as much as 79 per cent.
On the South African stock market, shares of all four companies mining the most platinum group metals (PGMs) fell. As of 10:43 a.m. local time Thursday, Amplats shares were down 6.8 per cent, Implats was down 1.9 per cent, Northam Platinum was down 5.2 per cent and Sibanye Stillwater was down 4.6 per cent.