Platinum vs Palladium: PL/PA Spread Behavior and Correlation Shifts
The Platinum–Palladium spread (PL/PA) is one of the most important relationships in metals — and most retail traders don’t understand it at all. These two metals compete directly in catalytic converters, share overlapping industrial demand, and react to supply disruptions from the same regions. When their correlation shifts, PL and PA futures explode in opposite directions. This guide lays out how the spread works, why it moves, and how traders actually use it.
What the PL/PA Spread Actually Measures
The PL/PA spread is simply:
PL price – PA price
But the meaning behind that number is far more important than the arithmetic. It tells you:
- Which metal is preferred for catalytic converters
- How automakers are shifting catalyst loadings
- How supply shocks are being priced
- Whether industrial demand is favoring platinum or palladium
- Where substitution pressure is building
When the spread tightens or widens aggressively, PL futures don’t just move — they melt up or collapse.
Contract Size Differences Create Unique Spread Behavior
| Metal | Ticker | Contract Size | Tick Value |
|---|---|---|---|
| Platinum | PL | 50 oz | $5 per tick |
| Palladium | PA | 100 oz | $10 per tick |
Palladium is twice the contract size and twice the tick value. This alone creates structural differences:
- PA moves dollar-for-dollar faster
- PL is easier to hedge for industrial users
- Spread volatility is asymmetrical — PA dominates shock events
Why the PL/PA Correlation Breaks Down
These two metals SHOULD be correlated. They often aren’t. The correlation snaps because:
- Automakers substitute between metals when one becomes too expensive
- South African mining disruptions affect PL more
- Russian export disruptions affect PA more
- Palladium demand is more concentrated and spiky
- Industrial technology shifts change catalyst loadings
When correlation breaks, the spread runs hundreds of dollars in one direction.
Substitution Cycles: The Real Engine Behind Spread Trends
The biggest driver of long-term PL/PA spread trends is substitution pressure inside catalytic converters:
- If palladium gets too expensive → automakers increase platinum loadings
- If platinum gets too expensive → automakers increase palladium loadings
This switching is slow but powerful, and creates multi-month PL/PA spread trends. Spread traders eat off these cycles every year.
Three Spread Regimes Every Trader Must Recognize
1. **PL Undervalued (Spread extremely negative)**
- Automakers shift back into platinum
- PL rallies faster on good news
- PA becomes increasingly vulnerable to downside shocks
2. **PA Overextended (Palladium spike)**
- Substitution pressure ramps instantly
- PA gets hit with profit-taking
- PL begins trending upward months before retail notices
3. **Correlation Collapse (clean divergence)**
- Industrial demand picks one metal decisively
- Supply disruptions hit only one side
- The spread becomes a breakout trade, not mean reversion
Recognize the regime and you instantly understand why PL is trending or whipsawing.
How Pros Actually Trade the PL/PA Spread
Serious traders don’t eyeball two charts. They run the spread directly:
Long PL / Short PA (spread expected to rise)
Short PL / Long PA (spread expected to fall)
Execution matters because:
- PA slippage is worse
- The legs must be sized correctly (contracts aren’t 1:1)
- Some brokers auto-spread; others require manual entry
Sizing the Spread Position
You must weight legs by dollar exposure, not contract count:
- 1 PL controls roughly 50 oz
- 1 PA controls roughly 100 oz
A balanced spread is typically:
2 PL vs 1 PA (by notional value)
But aggressive traders skew the ratio depending on volatility regime.
How Spread Behavior Moves the Outright PL Chart
Even if you aren’t trading the spread directly, the spread tells you what PL is about to do:
- If PL/PA is rising → PL gets tailwind
- If PL/PA is collapsing → PL gets dragged down
- If PL/PA is flat → PL is drifting or waiting for industrial cues
This is why PL sometimes trends beautifully even when fundamentals feel “quiet.” The spread is doing the heavy lifting.
Internal Link
To understand how PL responds to industrial cycles, read Industrial Demand Shocks and PL.
Final Take: The PL/PA Spread Is the Real Driver Behind PL Trends
If you ignore the platinum–palladium relationship, you’re trading PL blind. The spread tells you when industrial users favor platinum, when automakers are substituting, and when supply disruptions are hitting one metal harder than the other. Learn the spread, and PL’s price action finally makes sense.