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Why Palladium, Rhodium still offer good investment in 2020

Why Palladium and Rhodium still offer good investment in 2020

While gold prices climbed locked an 18.58 percent increase over the course of 2019, acting as both safe haven asset and good investment, there are other precious metals that skyrocketed hitting new highs.

Palladium, mainly used in the automotive industry as a catalytic converter that controls exhaust emissions, finished last year on a new all-time high of $1,942 an ounce, edging up nearly 60 percent in the futures market.  

The rally has not fizzled out, as the precious metal, so far, has gained 27.5 percent in January, where it hit a new peak at $2,584.68.

The key factors that have boosted palladium prices are more related to shortfall in its supply, which has lasted for most of the last decade.

Latest data from South Africa, which is responsible for producing two-fifths of the world’s mined palladium, said its production of platinum group metals including palladium tumbled more than 13 percent in November compared to the same period in 2018.

On the other hand, demand from China has soared after the rise in emission standards by 30 percent more palladium for every new vehicle.

By the same manner, major car regions such as India, United States and Europe are tightening emission legislations.

The signing of the phase-one trade deal between the United States and China could eventually lead to more growth in the auto industry in China and therefore yield in higher demand on palladium.

However, some analysts argue that the cheaper platinum price would drive carmakers to replace palladium with platinum, which is currently trading at $1,005 an ounce.

Platinum holds the same characteristics of palladium, but it is mainly used in diesel-powered vehicles, whilst palladium is used in gasoline-powered vehicles.

But the substitution process will take “time in terms of getting the certification ready,” which can take up to one or two years and can be costly, said Johann Wiebe, metals analyst at GFMS.

Rhodium, a derivative of platinum and nickel and also used in autocatalysts, has even outperformed palladium and all other major commodities last year, as its prices leaped 12-fold in the past four years.

Although it has a smaller market compared to palladium, any shortage on the supply side or rise in demand mainly result in dramatic changes in prices.

Johnson Matthey Rhodium spot price, shown in the previous image, shows the strong upside trend, where the price hit $9,985 on January 22, edging closer to its all time high of above $10,000 registered in 2008.

As mentioned, palladium could be replaced by platinum, but Rhodium has no alternative at the meantime, which suggests the continuation of the rally, especially as South Africa, which accounts for more than 80 percent of its global output is likely to remain prone to power shortages that disrupt mining operations.

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