VW fallout’s boost for palladium is likely to continue

THE boost for palladium prices from a scandal at Volkswagen (VW) over car pollution tests will probably be sustained as the metal’s biggest monthly jump in two years brings it in line with supply and demand, according to Norilsk Nickel, the top producer.

Palladium prices, used in autocatalysts to filter exhaust fumes, mostly from petrol cars, have surged 14% since September 18, when it emerged VW had rigged diesel vehicles to help them pass emissions tests, exposing the car maker to as much as $18bn in fines. Platinum, used more in diesel catalysts, has fallen 4.5% in the same period as investors speculated car buyers would switch to purchasing petrol vehicles. The premium paid for platinum, also used in jewellery, over palladium sank to near a 13-year low after the scandal broke.

An ounce of platinum now buys about 1.36oz of palladium, compared with 1.84oz at the end of August, according to data compiled by Bloomberg.

“The current ratio is good enough from a fundamental point of view,” Norilsk chief of strategic marketing Anton Berlin said. While “investors’ reaction to the diesel scandal was very emotional”, the ratio might now be stable, he said.

The previous price gap had been too wide and did not reflect fundamentals, as both metals were used in petrol and diesel autocatalysts, just in different ratios, said Mr Berlin. Makers of the devices for petrol engines use more palladium than platinum, as it is cheaper. Autocatalysts for diesel needed higher levels of platinum, and contained about 30% to 40% palladium, he said.

“The metals are similar in quality and both have the (vehicle) industry as their main markets,” Mr Berlin said. In the production of autocatalysts for petrol vehicles, “you can use the metal you prefer, but due to the price difference, it’s usually palladium,” he said.

Palladium is more important for Norilsk’s operations, making up about 23% of its total sales during the first half, compared with an 8% contribution from platinum. Palladium prices rose 8.7% last month, the biggest monthly gain since July 2013, while platinum slumped by 10% in the period, its largest collapse in four years.

While the VW scandal has brought benefits for Norilsk, the miner is still cutting spending after the price of nickel, making up about 40% of its revenue, collapsed about 40% in the past year to levels last seen during the 2008-09 global financial crisis.

The market for copper, another metal Norilsk produces, was doing better, Mr Berlin said.