The pandemic has curtailed demand as global economic activity suffers, the consultancy said in a report Wednesday. There also have been supply disruptions, with temporary mine shutdowns in key platinum-group-metals producer South Africa.
Metals Focus said the COVID-19 impact likely will be the greatest for palladium, which is used in automotive catalysts for gasoline-powered cars, which are popular in the No. 1 and 2 auto markets of China and the U.S. As recently as March, Metals Focus had forecast a physical deficit of 899,000 ounces, or 28 metric tons, in 2020 for the metal. However, the consultancy said it has now revised this to a deficit of 124,000 ounces, or 3.9 tons.
This would be the smallest deficit since the palladium market was last in surplus in 2011, according to Metals Focus data. The deficit was as much as 1.29 million ounces in 2016.
Meanwhile, the consultancy is now projecting a 2020 physical surplus of 247,000 ounces, or 7.7 tons, for platinum, roughly one-third lower than the March estimate.
These forecasts are based on the Metals Focus view that the COVID-19 crisis is brought under control in key markets in a timely manner and a stimulus-driven economic recovery occurs, the consultancy said. Nevertheless, “uncertainties of course still abound,” so there are “significant risks” to the forecast, analysts added.
“Regardless of the impact of COVID-19, we expect the status quo, of palladium being in a deficit and platinum in a surplus, to remain in place this year,” the consultancy said.
This continues the trend from a number of years now, in which platinum has been in surplus while palladium has been in a deficit, the consultancy said. Nevertheless, palladium’s deficit of 595,000 ounces in 2019 was narrower than in the previous three years, down from 980,000 ounces in 2018, Metals Focus said.
“The sharp year-on-year fall in palladium’s deficit in 2019 might at first glance seem to contradict clear signs of the physical-market tightness felt during the year,” Metals Focus said. “However, last year’s shortage only added to the declines in inventories recorded over most of the previous decade.”
Since 2010, above-ground stocks of palladium have declined by 5.3 million ounces (165 tons), or about 30%, analysts said.
For 2020, the consultancy sees palladium demand declining to 9.68 million ounces from 10.88 million the year before. The bulk of the demand is for auto catalysts, and this is expected to decline to 7.89 million ounces from an all-time high of 8.88 million in 2019. Supply is seen falling to 9.55 million ounces this year from 10.29 million.
Palladium prices are seen averaging $2,275 an ounce this year, compared to $1,537 last year.
In the case of platinum, Metals Focus sees total demand falling to 6.95 million ounces from 7.46 million in 2019, with auto-catalyst demand easing to 2.48 million ounces from 2.89 million. Supply is forecast to decline to 7.2 million ounces from 8.26 million. The consultancy forecast an average platinum price of $765 an ounce, down from $863 in 2019.
Palladium prices rose in 2019 and then accelerated to the upside in early 2020 prior to the pandemic, peaking above $2,880 in February, Metals Focus pointed out. Last year’s strength was due to the market’s supply/demand fundamentals as investment demand was actually muted, with many professional investors staying away because of low liquidity and thinking they had “missed the boat,” Metals Focus said.
“Later this year, we expect palladium prices to rally in spite of the current COVID-19 related challenges,” Metals Focus said. “As physical demand improves, we think the price is likely to return to the mid-$2,000s in the second half of 2020 and we would not be surprised if the February peak were approached before year-end.
“We are also cautiously optimistic for platinum, in spite of its fundamentals. We believe that the metal will ride on gold’s coat-tails, against a macroeconomic backdrop that becomes increasingly positive for the yellow metal, with a possible peak of $950 achieved in the final quarter.”
Author: Allen Sykora