Live Metal Prices / oz
Gold: 1841.94 USD
Silver: 24.09 USD
Platinum: 1022.50 USD
Palladium: 1995.00 USD
Rhodium: 12099.99 USD

Platinum and Palladium Scarcity: Are they Undervalued?

Palladium is on the verge of its first annual price decline in 6 years, while platinum is on the verge of recouping its first loss in 3 years. Both metals have been bucking the commodities sector's general upswing, which is almost on course to post its best performance after 2016.

As there is a worldwide scarcity of Platinum and Palladium, and semiconductor chips, the negative effect on demand for these metals heavily affected investor positioning and sentiment.

Platinum, on the other hand, has performed better this year than palladium. Additionally, it may be more undervalued in comparison to both gold and palladium.

An Analysis of the Recent Fall in Platinum and Palladium

The most active platinum futures PLF-22, -0.62 percent PL00, -0.62 percent finished at $926.20 per ounce, down almost 14% that year to date. Platinum futures increased by more than 10% the previous year, marking the second consecutive year of gains. 

Palladium futures PAH-22, +2.07% PA00, +2.07 percent finished at $1,812.60 per ounce, down over 26% year to date, and revealing the metal's first annual decline. Palladium prices increased over 29% the previous year.

Both metals have lost ground this year, whereas the S&P-GSCI-SPGSCI, -1.10%, a commodity index consisting of 24 exchange-traded contracts covering 5 commodities sectors, industrial metals and including precious, has gained more than 28% present year. It's on course to post its largest annual increase in around 12 years.

Reason for the Fall of Platinum and Palladium Prices

Given the scarcity of the above-mentioned semiconductor chips mostly used in automotive manufacture and palladium's primary application in catalytic converters to be used in gasoline-powered automobiles, palladium's demand loss was much larger than platinum's. Platinum is mostly used in diesel vehicles' catalytic converters, and there are significantly more gasoline-powered lighter vehicles on the road than diesel.

The increased price of palladium led to the metal's loss this current year. The amount of platinum being substituted for palladium just par a one-to-one basis has been made more public. Additionally, the resulting decline in palladium demand has exacerbated negative market sentiment.

Platinum mining has continued to recover gradually from the operational disruptions related to the last year's Covid-19, with net mine supply predicting an increase in production of 19 percent to 8.235 million ounces. The report was published in the Quarterly Report on Platinum by World Platinum Investment Council on Nov. 24.

Platinum demand has also been predicted to increase by 26% in the industrial section this year. Furthermore, investment demand is forecasted to increase by 86% year on year. In light of this, WPIC anticipates a 769,000 ounces platinum supply increase this year along with a further additional 637,000 ounces next year.

Conclusion

For palladium, which is more reliant on declining car sales and is in short supply globally, the previously anticipated gap should narrow to zero. Additional platinum and palladium supply losses associated with COVID-19-related mine closures, along with higher investment demands, look to push palladium supplies into a shortage rather than a surplus.