Platinum, Palladium Drop Over 40 Percent as COVID-19 Reverses Gains

Headwinds brought on by global supply chain disruptions and mass liquidations have battered platinum and palladium prices, ending a prolonged bull run for the latter. 

While gold has held onto some gains in the face of COVID-19, platinum-group metals (PGMs) have been less successful in retaining value amid the widespread market rout.

Palladium, which reached an all-time high of US$2,754 an ounce on February 27, dropped as low as US$1,430 on Wednesday (March 18) — a 48 percent drop over three weeks.

Platinum hasn’t fared much better, reaching its year-to-date high of US$1,019 per ounce on January 15; it has steadily trended lower in the months since then. The metal came to an 18 year low — unseen since 2002 — on Thursday (March 19) when it hit US$585, a 42 percent decline from its January high.

While safe haven demand is projected to benefit gold in the coming weeks, platinum and palladium, which are highly correlated to the automotive sector, are seen facing headwinds from supply disruptions and declines in end product demand.

“The global spread of Covid–19 has resulted in heavy global economic costs in areas of the world that now include China, Europe and the United States,” Dennis Shen, director of public finance at Scope Ratings, said in a recent FocusEconomics update.

He continued, “The severity of the anticipated severe downturn this year will depend on the degree to which the virus spreads further, and to what extent public health, regulatory, monetary and fiscal policy responses are effective in countering.”

To date, two emergency interest rate cuts from the US Federal Reserve, plus quantitative easing efforts, have done little to prop up markets amid the uncertainty. These actions are less likely to impact PGMs as automotive factories and manufacturers outside of China begin slowing or halting production.

While the current market for the sister metals is weak, FocusEconomics expects palladium to recover, driven by supply and demand fundamentals later in the year.

“Analysts see palladium prices recovering by year-end as coronavirus-induced disruption gradually ebbs. Moreover, structural factors such as tight supply and tougher environmental regulations in the EU and China will provide further support,” another recent report from the firm reads.

However, panelists polled in the report did note that “a prolonged virus-induced global downturn is a significant downside risk.” Palladium prices are expected to reach US$2,133 in Q4 2020.

For platinum, analysts questioned by FocusEconomics are less optimistic about a price recovery even if pandemic concerns ease.

“Low automotive demand due to the ongoing shift away from diesel vehicles should cap any upward movement,” states the firm. “While the possible substitution of palladium for platinum in catalytic converters poses an upside risk.”

Due to these factors, platinum’s projected Q4 price is US$984. However, a gold rally could potentially drag the metal higher as the two tend to move together.

As of 4:09 p.m. EDT on Thursday, an ounce of platinum was trading for US$589; meanwhile, palladium was selling for US$1,577.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.