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Declining demand from auto manufacturers will be a headwind for both platinum and palladium in the medium and long term.
2020 continues to be rife with challenges for platinum and palladium, with weak demand preventing price growth for both precious metals.
Moving forward, declining demand from auto manufacturers is expected to be a headwind for the platinum-group metals (PGMs) in the medium and long term.
However, during a PGMs webinar held by CPM Group, speakers at the firm noted that while the broad sector is softening, growing demand in certain segments paired with rising emissions standards in China could offset some of the larger losses.
The vast majority of PGMs are mined in major producer South Africa; a national COVID-19 lockdown in the country has prevented miners from reaching their quarterly output goals and is expected to keep total production tallies lower this year.
CPM Group’s Rohit Savant expects a sharp decline in total platinum supply this year.
“We expect both mine production as well as scrap supply to decline, and this decline is based on the disruptions that we’ve seen resulting from the coronavirus,” said the firm’s vice president of research.
In 2019, mine output combined with scrap supply amounted to 7.3 million ounces — one of the highest levels since 2015 and the third consecutive year of growth.
“CPM Group’s expectation of total supply for 2020 is about 6.4 million ounces,” said Savant. “And there is a great deal of uncertainty with regards to the forecast.”
After a 40 percent price slip in mid-March to US$588 per ounce — its lowest point since 2003 — platinum has added 36 percent to its value. However, the metal is expected to remain rangebound between US$855 to US$875, according to Jeffrey Christian, the head of CPM Group.
“Our expectation is that the price will continue to trade in this range for awhile. We do see scope for higher platinum prices in the future, but frankly it could be a couple of years from now before we see that,” he said during the Tuesday (June 30) webinar.
As automotive demand softens, increased interest in platinum exchange-traded funds (ETFs) may be a catalyst for the metal’s price to strengthen in the second half of the year.
In 2019, platinum held in ETFs reached a record of 3.3 million ounces. 2020 showed promise for platinum ETF growth until the March market crash, which saw prices fall 34 percent over two weeks.
“Pandemic-related risk-off sentiment resulted in some net reduction of about 500,000 ounces during March and April,” explained Savant. “Investors were seen coming back and adding metal during May — but not sufficiently to offset that loss.”
With platinum projected to experience price growth in the future as it is substituted for palladium in the autocatalyst industry, the value of palladium is unlikely to return to its pre-pandemic highs.
In early February, the metal reached its all-time high of US$2,614 an ounce, but in less than a month it had shed 42 percent.
Reactions to the coronavirus will impact palladium output in 2020, with a forecast production decline of 9.6 percent from 2018 to 8.9 million ounces.
Fabrication is anticipated to be one of the hardest-hit end use segments for palladium, with demand in that area seen falling 15 percent year-over-year. 2020 will see the lowest amount of palladium demand from the fabrication sector since 2011.
On the bright side, CPM Group sees the drop in automotive demand in China and US being offset by stricter emissions standards in the Asian nation that call for more palladium in catalysts.
Another area that may offer a tailwind is light truck demand in the US.
“They use more PGMs per catalyst, so this helps PGMs fabrication demand and offsets to some degree the losses,” said Savant.
A projected surplus will be a headwind for prices in the near term, but Savant expects investor interest in palladium to stay elevated, thereby offering some price support.
“We don’t necessarily see a sharp decline in prices,” he said. “But we are unlikely to see a run-up in palladium prices like we have over that last few years.”
At 1:49 p.m. EDT on Tuesday, an ounce of palladium was selling for US$1,874; an ounce of platinum was valued at US$818 at that time.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.