The factors driving platinum-palladium demand 

Around 85 per cent of the palladium demand is driven by the automotive industry, where the prices gained nearly 90 per cent in the last seven months to March, and the metal was at $1600 an ounce, where the demand outstripped supply. 

Market deficit resulted in diminishing prices. The gains in metal created a bubble where the prices are no longer increasing, but the rates will remain high for some time, as the automakers favour it - despite the rate rise, regardless of platinum's low cost at $500 an ounce. 

However, experts state it is highly volatile, moves in either direction and mostly undergoes sharp moves. 

Metal gains 

The gains by the metal were made when Fiat Chrysler Automobiles prepared to recall the gasoline-powered vehicles and use replacement catalysts, which required palladium and Rhodium. Overall, the market is small, but investments in the mining sector have been large. 

Further, these metals are needed to meet the emission standards. Some companies are contemplating replacing them with a cheaper option like platinum, but implementing such changes may take approximately 2 to 5 years. The inelastic supply/demand ratio makes it difficult for the automaker to substitute it.

Supply 

In Russia, it is mainly produced as a byproduct of Nickel extraction. However, a significant shift in the secondary scrap market recently changed the supply dynamics. Some suppliers are considering recycling end-of-life vehicles with a significant amount of metal in their autocatalysts. 

South Africa continues to dominate in production, and Russia and Zimbabwe produce a significant percentage of the global output, while the US and Canada produce about 12 per cent.  

Overall, the design of cars has changed significantly in the last 20 years. Reuters report claims the demand will continue to increase, as it is very difficult to shift catalytic converters from one metal to another, and it takes a lot of time to implement the change. 

Other Precious Metals 

The global movement of the metal is in line with the US dollar. China's demand is expected to remain fixed - the recent decline in auto sales in China by almost 10 to 20 per cent, year-on-year, and the decline in the European and US auto sales created a dip. Still, the two countries' prices are expected to move in a tight band where Chinese costs may remain above US prices. 

• Platinum is low, but it does not indicate it is undervalued; on the contrary, the other metal remains at historically higher levels.  

• Morgan Stanley expects the price to average at $1,575 an ounce in the year's second half. 

• The strategists state the price of Rhodium can go down from 3,390 an ounce to 3,050. 

• Both gold and silver are expected to gain over a weak macroeconomic environment, soft dollar, increase in geopolitical tensions, low bond yields and rise in tensions in the Middle East.