Precious metals leave base metals in the shadows

We have covered the precious metals and palladium, in particular, a few times over recent months, not because we have suddenly become PGM investors (although looking at price performance, that would have been a fortunate move) but simply because they are the only metals sector showing any real dynamism.
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The base metals have at best been lackluster. Aluminum has been range-bound for much of the last nine months, as has most of the base metals complex.
Copper has perked up since about November on the back of expectations of a thaw in U.S.-China trade relations. Nickel got interesting toward the back end of August when the market reacted to news of an Indonesian export ban but has since sunk back.
Only the precious metals have risen and sustained their rises during the period — albeit for differing reasons.

Gold and silver have benefited from reductions in Federal Reserve rates and an element of safe-haven buying. However, catalytic PGMs — such as palladium, platinum and rhodium — have ridden a wave of euphoria (or concern depending on your viewpoint) around demand from the auto sector due to tougher environmental standards and perceptions of a constrained supply base.
Neither demand nor supply drivers are overdone, but as we have seen many times before – think nickel prices and stainless grades – when prices rise too much, substitution and technology can step in to mitigate the cost increases and, ultimately, tamp down demand.
Palladium is favored in petrol engine catalytic converters and platinum in diesel (not to the exclusion of each other but in terms of ratio). The shift to petrol internal combustion engines (ICEs) from diesel has created a demand surge for palladium, but given that the two are to some extent interchangeable, there is the possibility we will see some platinum substitution of more expensive palladium, thus capping further significant price rises.
Both metals essentially catalyze the transformation of carbon monoxide into carbon dioxide and improve the conversion of partially combusted hydrocarbons into carbon dioxide and water.
Rhodium serves a different function, as it aids the conversion of dangerous nitrous oxides into nitrogen and oxygen. While environmental experts have very successfully drawn the public’s attention to the greenhouse gas effects of carbon dioxide and the dangers of carbon particulate pollution, it is not as widely appreciated how serious the impact of nitrogen oxides can be for human health, smog, acid rain, water quality and of course its effect as a greenhouse gas in global warming.
Growing concern is driving Europe’s stricter auto standards to be adopted elsewhere around the world, not least in the world’s largest car market, China. The rhodium market is in a slight surplus, according to a Reuters report citing Johnson Matthey data, but limited supply is meeting rising demand head-on.
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Palladium may be approaching a peak, but rhodium could have further to go in 2020.