The platinum mining industry has been a big part of the news in SA, since the Marikana tragedy of 16 August, 2012. But, what has not received as much publicity, are the price drivers of platinum group metals (PGMs), notably platinum and palladium, as well as precious metals, notably gold.
Gold is largely held as a currency, inflation or doomsday hedge. In the current risk-off environment the investment community has been selling its gold ETF holdings and has largely been responsible for the falling gold price since the beginning of 2013.
H
owever, the relationships between the PGMs are more nuanced, as the reasons for holding PGMs are very different to those for holding gold. PGMs are now being bought for fundamental supply & demand reasons.
Platinum demand is driven mostly by autocatalyst & jewellery off-take (Fig: 1), with most of the jewellery demand being from China. In contrast, most palladium demand (Fig: 2) is for autocatalyst use.
However, this is where it becomes interesting:
- Diesel vehicles use predominantly platinum auto catalysts while petrol vehicles use predominantly palladium auto catalysts.
- Europe & UK predominantly use diesel vehicles, while the USA uses predominantly petrol (“gasoline“). However, European vehicle sales have been low and falling since 2009. In contrast, vehicle sales in the USA have been rising over the same period (Fig: 3 and 4).
It is therefore unsurprising that the demand for palladium has been higher than that of platinum, and that the palladium price has outperformed the platinum price, by almost 50%, over the last 5 years.
