NEW YORK – Palladium’s surge to a record has intensified talk among analysts that carmakers will look to replace it with cheaper platinum for use in pollution-control devices. The auto industry’s answer: Not so fast.
Palladium, mainly used to control smog from gasoline engines, is trading near the highest relative to platinum since 2001 as consumers move away from diesel vehicles, where platinum is more widely used. Tensions between the US and Russia, a top supplier, and forecasts for shortages are also lifting palladium. Platinum fell to an almost ten-year low in August.
Still, while carmakers can substitute palladium with platinum, retooling factories is expensive and the metal makes up a relatively small part of their costs.
“It’s not a flick of a switch for us,” Rahul Mital, global technical specialist, diesel aftertreatment at General Motors, said in a panel discussion at a London Bullion Market Association meeting in Boston Monday. “Any time you want to make a substitution like that, it is at least 18 months to a two-year cycle if we’re going to switch. We have to be careful that by the time we do all that,” price changes don’t negate the benefits, he said.
“If palladium pressure continues, you will see those results.”
Platinum fell to an almost ten-year low in August and was trading at about $833/oz on Tuesday. That’s more than $250 below palladium’s level at about $1 089/oz.
But palladium’s elevated price is not sustainable because of the softening global car market, especially in China, according to Carsten Menke, commodities research analyst at Bank Julius Baer Group. The bank sees the price falling to $950/oz in three months and $900/oz in 12 months.