Is Palladium More Valuable Than Platinum?
COVID-19 has dramatically influenced the economics and the metal market during the pandemic.
Changing demand and supply scenarios have affected the prices of metals and the correlations between metals. And we want to investigate the change in two metals, palladium and platinum, two precious metal commodities required in gasoline and diesel engines. Thus, have a huge global need.
Palladium is a metal used in fuel cells to power cars and buses.
In addition, palladium is widely used in industries to catalyze reactions, including jewelry and dentistry, a wide range of jewelry is made from platinum as well, the most common use for this material is in catalytic converters found in cars and buses. It is difficult to distinguish between platinum and palladium. The same properties make them catalysts for the same chemicals and elements, which keep jewelry’s bright white color without tarnishing over time. Density and price are the main differences between the two. Platinum is much denser than palladium.
COVID-19 has dramatically impacted the palladium and the platinum market. Because of the pandemic, vehicle sales declined which decreased demand for palladium and platinum. In addition, the supply of palladium and platinum became reduced because of the social distancing and the layoffs in the job market. So, both of the demand and supply for palladium and platinum declined during the pandemic.
We used to plot the prices for the palladium and the platinum before covid from 2016, February 1st to 2019, August 1st to investigate the correlation between palladium and platinum. We can observe that the price of palladium and platinum has high correlation. It showed the mainly same trend of decline or increase in a certain period. The price of palladium increased as the price of platinum increased and decreased as the platinum decreased. In addition, we use linear regression, a statistical model, to investigate the relationship between those two models. And it turns out that the coefficient for the linear regression is around 0.9773, which means when the price of palladium changes 1 unit, the price of platinum will change 0.9773 units accordingly. So we can observe that those two medals are closely correlated before COVID-19.
Figure 1 Palladium versus Platinum before Covid
Figure 2 OLS result
Then, we plot the prices for the palladium and the platinum after COVID-19 from 2019, February 1st to 2022, July 1st. We can observe that the price of palladium and platinum has a significant correlation. The change in the price of platinum also follows the price change of the palladium to increase or decrease. However, we noticed that it is not the similar changes as before COVID- 19. The changes of palladium is smaller compared with the change of platinum. In addition, the change of palladium is much less compared with before the pandemic period. And the correlation between those two medals is not as strong as prior COVID-19.
Figure 3 Palladium versus Platinum after Covid
In addition, we use linear regression to investigate the relationship between those two medals. And it turns out that the coefficient for the linear regression is around 0.4489 now, which means when the price of palladium changes 1 unit, the price of platinum will change 0.4489 units accordingly. We can see that the correlation between those two metals weakened significantly after COVID-19 compared with the time before COVID-19.
Figure 4 OLS result
Written by Yue Zhang
Is Palladium More Valuable Than Platinum?
