In early February, palladium prices hit a peak of $2,459/oz and rhodium prices had risen to $10,775/oz. These are historical highs for both metals and current prices are 1.8 times and 4.4 times their levels of a year ago. A significant part of that increase has occurred since the start of the year.
Remarkably, for South African platinum producers, platinum itself will only account for one-quarter of their total revenues at current spot price levels. There are also significant cost implications for consumers. The effect of these price changes is calculated by Roskill to have more than doubled the cost of platinum group metals (PGMs) used in a typical mid-size gasoline vehicle’s auto catalyst; from under $300 per vehicle to over $600 per vehicle.
Underlying pressure in the PGM markets has been building for a number of years due to a lack of growth in supply and rising demand for PGMs used in auto catalysts. Tightening emission standards and a recent shift from diesel to gasoline vehicles in Europe has recently put particular pressure on demand for palladium. The effects of these trends in the palladium market have been masked, to some degree, by a squeeze on its use in non-auto catalyst applications and from EFT sales, but the market has now hit a point of critical supply availability. About 85% of demand for palladium is now from auto catalysts, up from about 50% around a decade ago. Rhodium is used predominantly in auto catalysts to reduce NOx and is subject to most of the same structural pressures seen in palladium.
The current, very elevated, prices for palladium and rhodium suggest that some short-term speculative or stock building activity is impacting the market and price volatility for both metals is likely to continue in the near term. However, Roskill expects little growth in mine output over the next couple of years and for a structural deficit in the palladium and rhodium markets to persist. Market balances and price outcomes for palladium during this period will depend on the release of large, but uncertain, metal stockpiles accumulated in the Former Soviet Union. Should this not happen, supply and demand will need to adjust to bring supply and demand into closer alignment. Recent price levels are likely to be enough cause, but this will take some time; they will encourage a shift back to use of platinum in auto catalysts, the search for ceramic or other alternatives to PGMs, and lead to investment in new mine supply.
There is probably also a time-limited window of opportunity for producers to benefit from current conditions. In the longer term, rising EV penetration rates will start to affect auto catalyst demand for both palladium and rhodium, whilst very significant increases in the amount of recycled metal going back into the market are expected. At some point, currently thought to be towards the end of the decade, both markets are likely to switch into structural oversupply unless new applications are developed.
Much like the imbalance in the PGM basket, the rare earth element (REE) basket is out of balance. Auto catalysts have significant surplus cerium (the highest volume REE in the supply basket), whereas magnet materials neodymium and dysprosium used in EV drivetrain motors approach a tightening supply as EV penetration sets in. While growth in the EV market may see the PGM basket rebalance as autocatalyst demand weakens, the REE basket is poised for a growing imbalance as cerium demand falls away with growing supply.