[Industry perspective] Is palladium more valuable than platinum?

Source: rebellionresearch | Translation: World Platinum Investment Association

The COVID-19 has had a tremendous impact on the world economy and the metal market.

The supply and demand change scenario affects the correlation between metal prices and metals. The purpose of this paper is to study the changes of palladium and platinum, which are used in gasoline and diesel engines, and therefore have huge global demand.

Palladium is widely used in fuel cells of automobiles and buses.

In addition, palladium is widely used in industries that require catalytic reactions, such as jewelry and dentistry. Another precious metal that can be made into various kinds of jewelry is platinum, which is most commonly used in catalytic converters of automobiles and buses. It is difficult to distinguish between platinum and palladium. The same properties make them the catalysts of the same chemical substances and elements, and keep the jewelry bright and white, and will not fade with time. Density and price are the main differences between the two. The density of platinum is much higher than that of palladium.

The COVID-19 has greatly affected the palladium and platinum market. The demand for palladium and platinum decreased due to the decline in car sales due to the epidemic. In addition, the supply of palladium and platinum also decreased due to the social distance required by the epidemic and job market layoffs. Therefore, the demand and supply of palladium and platinum both declined during the epidemic.

We have drawn the price chart of palladium and platinum from February 1, 2016 to August 1, 2019 before the COVID-19 epidemic to study the correlation between palladium and platinum. It can be seen that the prices of palladium and platinum are highly correlated and show the same downward or upward trend in a certain period of time. Palladium price rises with the rise of platinum price and decreases with the fall of platinum price. In addition, we also use the statistical model of linear regression to study the relationship between the two models. The result shows that the coefficient of linear regression is about 0.9773, which means that when the palladium price changes by 1 unit, the platinum price will change by 0.9773 units. Therefore, we can observe that these two precious metals were closely related before the COVID-19 epidemic.

Comparison of palladium and platinum before epidemic

Figure 2 OLS results

In addition, we have drawn the price chart of palladium and platinum after the COVID-19 epidemic from February 1, 2019 to July 1, 2022. It can be seen that the prices of palladium and platinum are also significantly correlated. The platinum price also rose or fell with the price change of palladium. However, we note that this is different from the changes before the COVID-19 epidemic. The change of palladium is smaller than that of platinum. In addition, the change of palladium is much smaller than before the COVID-19 epidemic. The correlation between these two precious metals is weaker than that before the COVID-19 epidemic.

Figure 3 Comparison of palladium and platinum after the epidemic

In addition, we also use linear regression to analyze the relationship between these two precious metals. The research shows that the coefficient of linear regression is about 0.4489, which means that when the palladium price changes by 1 unit, the platinum price will also change by 0.4489 units. It can be seen that the correlation between these two metals is significantly weakened after the epidemic compared with that before the epidemic. (Source: rebellionresearch)

Figure 4 OLS results