PALLADIUM Price Forecast Factors

Palladium is not only a precious metal, it is also considered an industrial metal as is silver. However, palladium is 5 times more rare in the earth’s crust than is silver. Hence the great difference in value of each (i.e. Palladium is $810/oz. vs Silver at $20/oz).  

However, for industrial purposes there is no real substitute for Palladium, except Platinum which is 43% more expensive today (Platinum is $1,424/oz).  Moreover, Palladium has the highest melting point and is the lightest of the precious metals, which is eminently vital for industrial use…especially in catalytic converters that is a device to control vehicle toxic pollutant emissions.  To be sure all major cities in the world are today plagued with the vital necessity of ever increasing smog reduction control.

Although Palladium is used in jewelry, electronic components for personal computers and cellular telephones, as well as in dental applications and in petroleum and industrial catalysts – However, it’s over-whelming use is in Automotive Industry…WORLDWIDE.

This begs the question:  What is the global demand for Palladium use in making catalytic converters for cars and trucks?

This is determined by a number of factors:

• The number of motor vehicles on the road.
• The global auto production.
• The amount of Palladium that goes into making a catalytic converter.
• Ever more stringent smog control requirements by governments.
• China’s Yearly Palladium Demand Has Gone Viral.

Number of vehicles already on the road

Obviously, the cars and trucks already on the road have smog catalytic converters. Nonetheless, this will give one an idea of how much Palladium is already used (assuming the manufacturers use the cheaper and more efficient Palladium rather than the more costly Platinum). 

According to reliable Auto Industry sources, there are today 1.09  billion auto units on the road (i.e. 1,090,000,000  - Source: http://wardsauto.com/ar/world_vehicle_population_1assuming10815 ). 

The Global Auto Production

Auto Industry sources estimate global vehicle production has a Compound Annual Growth Rate (CAGR) of 2.4% during the last 22 years. Astoundingly, China’s car production sports a 20.0% CAGR since 1990…that’s more than 8 times the production rate of the rest of the world.  Here are some of the auto production statistics that are mind-blowing:

The amount of Palladium that goes into making a catalytic converter

According to industry sources, the average amount of Palladium or Platinum that goes into a vehicle’s emission control device is 3-7oz.  Needless to say that’s a monumental amount of yearly Palladium demand vis-à-vis the global annual new car and truck production.

Ever more stringent smog control requirements by governments

Throughout the 1950s and 1960s, various federal, state and local governments in the United States conducted studies into the numerous sources of air pollution. These studies ultimately attributed a significant portion of air pollution to the automobile, and concluded air pollution is not bounded by local political boundaries. At that time, such minimal emission control regulations existing in the U.S. were promulgated at the municipal or, occasionally, the state level. The ineffective local regulations were gradually supplanted by more comprehensive, stringent state and federal regulations. Furthermore, major world nations are today embracing and enforcing ever more tough auto emission controls to safe-guard the public’s health…because auto emissions of many air pollutants have been shown to have a variety of dire negative effects on public health and the natural environments. Consequently, the demand for palladium for use in emission control devices may well accelerate in the future.

China’s Yearly Palladium Demand Has Gone Viral

It is widely reported the largest and fastest auto industry growth worldwide is CHINA. With an existing population of 1.35 billion, its teeming masses are eagerly seeking to improve their standard of living. And one very important aspect of improving one’s life-style is owning a car.  With the rise of the middle-class, the Chinese have increasingly more money to spend. The basic necessities of life have long since been provided for. Now the Chinese will turn to acquiring luxury goods such as electronic equipment and cars.

China’s total auto use and annual vehicle production has begun to go viral in recent years.  China has approximately 82 automobiles per 1,000 people, while the U.S. and Europe have approximately 757 automobiles per 1,000 people. The upside potential for total car ownership in China is large indeed.

In light of China’s parabolic vehicle production vis-à-vis 1.35 Billion population, one may project an increasing supply deficit level for this critical industrial metal used in all cars worldwide, which has been in deficit since 2012.  China car production has gone viral with a CAGR of nearly 20% since 1990 (by far the highest in the world). Per CECI chart projection (above),  China’s yearly car production should double to 30 million units by 2020.  Obviously, China’s annual Palladium demand will necessarily also DOUBLE.

“The automotive industry is by far the most important demand driver for palladium and the Chinese market is a gasoline-driven one,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “Chinese car sales should continue to rise this year, which favors higher palladium imports.”

China’s Palladium imports expanded 8.9 percent to 22,268 kilograms (715,938 ounces) last year from 2012 according to Bloomberg calculations based on Customs General Administration data released recently.  Consequently,  to satisfy China’s spiraling Palladium demand for its explosive auto industry growth,  the Sino nation must import all as it has zero palladium mine production.

Palladium Price Forecast 

Based upon the above analysis of this metal’s fundamentals, it is estimated Palladium might rise to $2500 to $3000/oz within the next five years. However and in the event the Russian/Ukraine tensions escalate (as Russia accounts for 41% of the yearly mine supply), Palladium might go ballistic above these levels.  This is entirely possible since the price of Palladium went viral in 2001…soaring 140% from $460 to $1100 due primarily to production problems in Russia. Interestingly and astoundingly, when Palladium topped $1100/oz in January 2001, the price of gold was only $265/oz…indeed Palladium was worth 4 TIMES MORE THAN THE SHINY YELLOW.  Therefore if it happened before, it could happen again…especially in light of Russian President Putin’s aggression toward the Ukraine.

Palladium vs Gold (2000-2001)

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Related Analysis:    Palladium Price Forecast 

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