RISE AND SHINE

The diesel emissions scandal helped make palladium more valuable than gold

The prize itself.
The prize itself.
Image: Reuters/Ilya Naymushin
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Palladium prices have never known such glittering heights. The silvery-white precious metal is now $1,351.40 an ounce: more expensive than gold ($1,283.75 an ounce) or platinum ($792.30 an ounce), and just a little cheaper than iridium ($1,460 an ounce) and rhodium ($2,460). As Bloomberg reports, palladium has surged around 50% in the past four months. A decade ago, it cost less than $200 an ounce.

About 80% of all palladium winds up in the exhaust systems of cars—it helps turn nasty pollutants into more benign water vapor and carbon dioxide. (The metal has also occasionally been used for jewelry, particularly during World War II, where a scarcity of platinum led it to be used in wedding bands.)

Two years ago, market researchers predicted that palladium had already hit its peak. Instead, it’s only continued to become more valuable—bolstered by the Volkswagen emission scandal, and China’s new emissions regulations, which have affected how the country’s cars are made.

In the past, palladium prices were held in a kind of dynamic equilibrium with platinum. While palladium is used in cars fueled by gasoline, platinum is the metal of choice for catalytic converters in diesel cars. This long looked unlikely to change: For European customers, and especially Germans, owning a diesel car meant saving money at almost every turn. The fuel was government subsidized; the mileage was second to none; even diesel car registration taxes were cheaper than their gas counterparts. In 1990, diesel cars had a 13% market share in western Europe; within 15 years, it was more than 50%.

But ever since the Volkswagen emissions scandal, when the company falsified US vehicle emission tests, the image of clean diesel has gone up in smoke. Increasingly, European consumers are leaving diesel cars by the wayside, and opting for gasoline instead. In 2017, British diesel sales plunged by 17% and last year sales of gas-powered cars in Germany outstripped diesel for the first time since 1999.

Demand for already scarce palladium has risen with these sales of gas-powered cars. For eight years, supply has outstripped demand and this recent boost has only exacerbated already high prices. Add to that China’s new emissions regulations, which have forced car manufacturers to invest more heavily in effective catalytic converters, and a sellers’ market is no surprise. Mining companies won’t be able to fulfill the rise in demand either: As the Financial Times reports (paywall), world leader Norilsk Nickel anticipates flat supply until 2020, with no new projects until after 2025.

But the tremendous upswing in demand may not last long. China’s automobile sales are no longer rocketing up as they once were, with the nation’s car market contracting this year for the first time since the 1990s. There’s a technical solution, too: Gasoline cars could also use platinum instead of palladium, though doing so would require a significant, and expensive, change in how the vehicles are manufactured.

On the horizon, there’s a much more distant resolution—the mass adoption of electric cars, which don’t use either metal. At current estimates, however, this is at least a decade or two away. Either way, high palladium prices are here for the foreseeable future, leaving speculators laughing all the way to the bank.