Palladium to Beat Platinum


"It's all about China's auto boom."

Considering the Chinese auto boom, palladium will likely lure investors more than platinum. The large growth potential of China's car market, a more limited supply outlook for the metal and its inherent volatility will help palladium beat platinum.

Industry experts offered an upbeat outlook for both major PGMs, but singled out palladium as having more room for price gains.

Palladium is showing its best performance against platinum in about six years due to its reliance on the China's vehicle market, where cars are almost exclusively powered by gasoline.

Catalysts in diesel engines tend to take a higher loading of platinum, while palladium is more abundant in catalysts for gasoline engines.

Investors favor palladium over platinum. If you go to put a trade on in the PGM space, your first port of call is obviously platinum. But how do we get more juice? "Palladium," JP Morgan Strategist Michael Jansen said.

Rapidly dwindling aboveground stocks of palladium and slowing output from top-producer Russia will put more pressure on palladium supply than platinum, where expectations are for a rise in production, especially in major miner South Africa.

Investors love owning assets with a supply risk, Jansen said.

One thing is sure—in two or three years, Russian and South African palladium production probably won't be much higher than where it was in 2006–2007, while the outlook for platinum looks a little more upbeat. Ultimately, the price outlook is helped by the fact that it has traded considerably higher before.

Palladium has risen more than 30% this year to >$550/oz. and is holding around two-year highs but remains below the 2001record peak of more than $1,000/oz.

Platinum meanwhile has risen by 9.6% this year to around $1,600/oz.

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