With a limited amount of automobiles available, prices for cars have soared in recent years — and the precious metals used in a key vehicle component have also risen in price, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals provider Lear Capital.
Amid auto plant shutdowns during the COVID-19 pandemic and supply chain issues — such as semiconductor shortages — car manufacturing slowed, causing fewer new vehicles to be on the market.
With less of an available supply, the demand — and cost for cars — escalated. As of March 2023, the average new vehicle transaction price was more than $10,880 higher than before the pandemic, according to an NPR article published earlier this year.
Prices for the precious metals used in vehicle catalytic converters, which neutralize engine exhaust gases that contribute to air pollution and smog, have risen, too. Catalytic converters, which are generally located on the underside of cars and trucks, can contain platinum, rhodium, and palladium.
As this Lear Capital article points out, tighter emission standards and higher manufacturing levels generally equate to a greater need for platinum. Platinum prices increased between 2019 and 2022, Car and Driver magazine reported last year, while the price of palladium essentially doubled between the start of 2019 and the close of 2020.
As prices for those precious metals grew, from 2020 to 2022, catalytic converter thefts also increased. In 2022, more than 64,000 incidents occurred across the U.S., according to a National Insurance Crime Bureau report that’s based on insurance claims data.
A converter, NICB says, can net thieves $50 to $250 — and possibly up to $800, if it’s been removed from a hybrid automobile.
The Present and Projected Platinum Market
In December 2022, platinum had its strongest quarter since 2008, reaching $1,086 per troy ounce, according to a CNBC report — a more than 26% rise from the beginning of that business quarter.
At the time, the World Platinum Investment Council predicted the industrial demand for platinum — including the demand for it within the automotive industry — would also continue to grow, ultimately, WPIC said, helping to contribute to an anticipated 19% overall increase in platinum demand on a global scale in 2023.
By March, however, the organization had already nudged that estimate higher. Ed Sterck, director of research at the World Platinum Investment Council, told CNBC that, at that point,WPIC felt the year-on-year demand for platinum would grow 24% in 2023 — yet the organization had expected to see just a 13% supply increase from 2022.
Platinum’s price has been forecast to increase in 2023, due in part to challenges in two of the major platinum-producing countries: South Africa and Russia. Even one of those nations experiencing mining difficulties can have a profound effect on overall availability.
In 2018, for example, when higher labor and electricity costs and other factors caused mining difficulties in South Africa, the production of platinum metals declined by 4%.
Earlier this year, in March, Kevin DeMeritt noted the interest in the precious metal was ticking upward.
“We have some supply issues with platinum because it’s relatively limited, with the majority of the world’s platinum coming from just a few countries — two of which are South Africa and Russia,” the Lear Capital founder said. “So we’re starting to see demand for platinum increasing.”
Car-Related Precious Metal Use May Escalate
Part of the anticipated boost in platinum use could come from the catalytic converter market.
“Most of the industrial applications come in the form of a catalytic converter, which is used to reduce emissions in automobiles,” Kevin DeMeritt says. “With the green economy, everybody wants to continue to do that, so the demand there will continue. I don’t think we’re going to have enough electric cars to take that away for the next 10 or 15 years.”
Catalytic converter production is currently the top use for platinum-group metals in the U.S., according to a 2020 U.S. Geological Survey report. In the next four years, the global catalytic converter market is forecast to climb from $13.24 billion in 2021 to more than $20 billion.
Additional reports suggest rising auto demand could result in the biggest supply shortage of available platinum in the world in years.
“It’s a fairly versatile metal with a lot of different industrial applications,” Kevin DeMeritt says. “And it has strategic applications.”
The current United Auto Workers strike, which began in September over labor negotiations, stands to further reduce vehicle manufacturing and availability.
While it’s unclear if car prices will consistently rise as a result, or if platinum and palladium prices will increase in tandem, once the strike ends and production resumes at its previous level, the demand for vehicle-related platinum and palladium usage could continue to climb.
In addition to auto industry-related demand, further needs for platinum to use in jewelry and other industry applications could drive prices for the precious metal even higher. (To check current and past precious metal prices at any time, you can view Lear Capital’s platinum, palladium, and other price charts.)
Palladium, too, may experience price increases in the future, Kevin DeMeritt says. Russia is the largest source of palladium imports in the U.S., according to International Trade Commission data; the Organisation for Economic Cooperation and Development says Russia has traditionally been responsible for 43% of all palladium production globally.
With no clear end to its conflict with Ukraine, palladium distribution could be constrained in the future.
“Platinum historically has traded at a premium over the price of gold,” Kevin DeMeritt says. “But recently, the price of palladium is trading for [less than] gold — which could be an incredible long-term opportunity for investors.”