TOKYO -- The international price of palladium, a precious metal used to purify automobile exhaust, has climbed to its highest territory in about 16 years as emerging-market demand for gasoline vehicles rises and producer countries reduce supply.
The most actively traded palladium futures on the New York Mercantile Exchange have climbed to just under $900 per troy ounce, up 90% from when prices bottomed out in January 2016. If palladium prices exceed an August 2014 mark of just over $900, they will reach the highest since 2001.
Palladium serves as a catalyst to convert toxic substances from combustion engines into less harmful ones. Demand for fuel-burning vehicles has gotten a fillip in the U.S. and China from a dip in crude oil prices.
High palladium demand "had been covered by above-ground stock," said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank. The U.K. and Switzerland, which have plentiful storage warehouses, had a combined export surplus of 311 tons in December.
But output from Russia, which produces 40% of the world's palladium, will fall 3% this year compared with 2016, according to British palladium refiner Johnson Matthey. World demand for 2017 is expected to exceed supply by 24.4 tons.
Since the 1990s, the automobile industry has used a combination of palladium and rhodium in catalytic converters. These metals are currently the most effective available, meaning that palladium use cannot be reduced soon.
Automakers procure palladium directly from mining companies, and few worries about a lack of supply exist at the moment. But if prices continue to rise, "it is possible that palladium conservation will advance," said Chiaki Kaneko of Japanese precious-metals refiner Tanaka Kikinzoku.
"Efforts to reduce the usage of palladium and rhodium will continue," said Teiji Yamada, general manager of catalysts development at Tokyo-based N.E. Chemcat. Toyota Motor plans to commercialize converter technology that relies less on precious metals such as palladium.
Meanwhile, prices of platinum, another precious metal used mainly in catalytic converters for diesel engines, have continued to fall since 2015. Benchmark Nymex platinum futures recently traded at slightly more than $930 per troy ounce, a 7% drop since the metal's recent high in March. There is even a chance that palladium will overtake platinum in price.
Platinum is normally more expensive than palladium, owing to scarcer production. However, in Europe, where diesel vehicles are popular, new catalytic converter models less reliant on platinum are expected to drive down usage of the metal. Demand for platinum jewelry has also been lackluster.
No large-scale strikes by miners are on the horizon in South Africa, a major producer of the metal. As signs of a platinum glut emerge, its premium over palladium could shrink even further this year.