Palladium is one of the six platinum group metals (PGM). It is a rare precious metal (many times rarer than gold) and a large portion of it is extracted from mines in Russia, the United States of America, South Africa, and Canada. Moreover, its significance lies in the way that it is utilized for different purposes including use as an industrial catalyst. It is also used in the electronics and jewellery industry.
Following the basic rules of market demand and supply the reason why palladium is so expensive can be deduced. The demand is ever-increasing, especially in China as the government takes stricter action to crack down on and combat pollution from vehicles. This has pushed the automobile industry (in China and worldwide) to consume more of these precious metals to make catalytic converters. These exhaust emission control devices are used in cars to split the harmless and harmful molecules in a way that ensures that the gases released into the air are safe for the environment. Around 85% of this precious metal is employed for this use alone by automobile industries globally.
This increase in demand has not been reciprocated by the supply. Therefore, according to market demand and supply guidelines, a drastic increase in demand that is not met by a growth in the supply pushes the prices to increase/ This has resulted in palladium that is more expensive than platinum. One reason that there has been no increase in supply is due to the coronavirus pandemic lockdowns worldwide. These lockdowns, particularly in countries like South Africa where the metal is mined, had adverse consequences which caused a decrease in mining activity.
When it is mined, Palladium can be extracted in larger quantities than silver. This has increased its demand by numerous industries to be utilized as an alternative to platinum. In the past palladium has been sold for practically half the price of platinum. However, the new increase in demand for industrial purposes changed the price disparity. As of now, palladium's spot price is more than $1000 higher than platinum's price per ounce. Palladium is trading around $2,332 while platinum is around $1,283 per ounce. Astoundingly, palladium's price is expected to increase further as platinum price trends downwards.
Many experts argue that speculators are driving up the price to a certain extent. Bets placed by hedge funds on an increase in palladium prices have risen since August 2018. But still, the immediate delivery of palladium is more expensive than buying it at a later date indicating that manufacturers are scrambling for supply.
Finally, palladium is volatile just like other precious metals that are consumed by the auto industry in small amounts. And these metals have historically been subjected to price spikes when demand overpowers supply. Before buyers found ways to consume less of these metals. In 1998, rhodium prices soared more than 4,000% spread over a decade while platinum rose by over 500% as a reaction to the shortage in supply by speculative traders.