By Anushree Mukherjee and Kavya Balaraman

(Reuters) -Platinum and palladium prices have both rallied this month, notching a more than four-year and seven-month high respectively, but analysts say they remain more cautious about the outlook for palladium due to its narrower demand base.

Spot platinum was trading at $1,272.45 per ounce as of 1545 GMT on Wednesday, its highest level since February 2021, and has risen 41% this year on supply concerns, renewed investor interest following London Platinum Week in May, and increased jewellery demand as high gold prices drive consumers to cheaper alternatives, analysts say.

Spot palladium, meanwhile, was trading at $1,078.62/oz, its highest level since November 2024, and has gained 18% this year, but has struggled to reach the high of $1,244.75 hit in October 2024.

"The biggest factor is likely the wider appeal which platinum enjoys. Platinum’s uses are more diverse, spanning industrial applications, jewelry, and investor demand," said Zain Vawda, market analyst at MarketPulse by OANDA.

"This diversification shields platinum from the headwinds palladium faces, such as declining long-term demand from the traditional automotive market due to the EV transition."

Palladium is mainly used in catalytic converters for gasoline vehicles, while platinum has broader uses in diesel catalytic converters, jewellery, industrial applications, and emerging hydrogen technologies.

PALLADIUM PRICES LAGGING

Palladium could be considered a "one trick pony", with 90% of its demand coming from car manufacturers, Bank of America said in a note last week.

"China's rising EV penetration rates are particularly damaging because it means that palladium-intensive cars with a gasoline engine are now being quickly displaced," the note added.

The transition to EVs will also affect platinum in the medium term, but to a lesser extent, analysts told Reuters.

"Large commercial vehicles will likely use larger amounts of platinum (relative to palladium) and these vehicles will be slower to electrify. Over time, the hydrogen economy will also absorb some platinum, limiting the downside risk on platinum versus palladium," said Nitesh Shah, commodities strategist at WisdomTree.

Global sales of battery-electric vehicles and plug-in hybrids rose to 1.5 million in April. Sales in China were up 32% from the same month of 2024 to 0.9 million vehicles.

PLATINUM RALLIES

Platinum, meanwhile, is expected to be moderately supported over the next six to 12 months, although the upside may be capped without a clear rebound in auto demand or meaningful acceleration in hydrogen-related applications, said Alexander Zumpfe, a precious metals trader at Heraeus Metals Germany.

Platinum jewellery demand is likely to continue benefiting from high gold prices, analysts said.

"We believe that platinum will retain recent gains and could rise a little further as gold and silver gain. We are less confident that palladium will go much higher until turbulence in the auto industry settles," Shah added.

Gold has surged 27% this year, touching multiple record highs, while silver has risen 26% in 2025.

(Reporting by Anushree Mukherjee and Kavya Balaraman in Bengaluru, Editing by Ed Osmond)