Platinum and Palladium - Production Costs and Effect on Prices

     The PGM expression in the second row of the table above stands for Platinum Group Metals.

     The PGMs are platinum (Pt), palladium (Pd), rhodium (Rh), ruthenium (Ru), osmium (Os), and iridium (Ir). The six metals are often found together, but their relative abundances can vary considerably.

     Since they are found together, their production in the mines also occurs simultaneously. Therefore, the reserve amounts are given collectively as PGMs, not separately for platinum and palladium. The total known PGM reserve is around 70,000 tons.

     In the last column of the table above, you see that most of the world's PGM reserves are in the Republic of South Africa. The total reserves, which appear to be 71,000 tons worldwide, are estimated to increase to 100,000 tons after possible discoveries in the future.

     When we look at the production figures, it is understood that the annual production of Palladium in the mines excluding recycling is 190 tons and the annual production of Platinum is 171 tons. The annual production of gold and silver is much higher than these two metals.

     We know that platinum is one-third of palladium in the earth's crust. Considering today's production figures, it can be said that -according to the remaining reserves- platinum has a lifespan of 83 years and palladium 225 years. These numbers correspond to 16 years for gold and 24 years for silver.

     There has been a decline in both platinum and palladium costs. The first reason for this is the depreciation of the South African currency, the largest producer, against the US dollar.

     The second reason is the major decline in the use of platinum for jewelry and investment purposes. There is no such decline in the industrial and automotive sectors. However, the decline in total demand causes high-cost mines to stop production, which in turn causes total costs to decline in terms of averages.

     Therefore, the cost of platinum production has decreased from 1200 dollars in 2013 to 800 dollars today.

     Due to falling demand and closed mines, platinum production has now fallen so much that total annual production has begun to fall short of global platinum demand. A deficit of 759 kilo ounces, in other words 23.6 tons, emerged in 2023. It is estimated that this deficit will repeat itself every year until 2027. Because even if the price of platinum increases, it is not possible for closed or stopped mines to immediately resume operations.

Therefore, the first reason why the market price of platinum will increase in the next 1-3-5 years is this forced decrease in production.

The production cost of palladium is around $ 500, as it can be mined relatively easier and more than platinum.

When we compare the production costs of platinum and palladium with market prices, it is very clear how advantageous platinum is in terms of purchasing, including gold and silver. While the market price of all other precious metals are almost twice of their costs, the market price of platinum is only 18% higher than its cost.

When investment and jewelry demand for platinum increases, the value of platinum will increase. This will bring high-cost mines back into play, and this whole process may cause platinum to catch up with gold once again and even surpass it, both in terms of market price and the ratio of this price to production costs.

Because historically, the price of platinum has always been above gold. This situation is examined in detail in the next section of this blog site by using graphs.