The global palladium market deficit is expected to “narrow significantly” this year, says Heraeus Precious Metals, one of the world’s largest platinum group metals (PGM) refiners.
In its latest PGM market report in collaboration with SFA (Oxford) — The Palladium Standard — Heraeus outlines the geographically diverse supply base and lower metal demand due to slumps in the auto and industrial sectors as reasons for the tightening supply-demand gap, which is set to reach minus 145 koz this year compared to the minus 670 koz deficit recorded in 2019.
According to the PGM refiner, total palladium demand is expected to decline 16% to 8.89 moz in 2020, with industrial demand predicted to contract by 12% to 1.49 moz owing to a combination of high palladium prices and lower economic growth reducing the base level of demand.
However, market tightness for palladium has eased somewhat as lease rates have declined and car sales have weakened. With the market set to be close to balance this year for the first time since 2009, the price of the metal is expected to soften but remain high by historical standards, Heraeus says.
Meanwhile, global palladium production is forecast to slip by 11% to 6.44 moz this year, owing to the effect of covid-19 lockdowns on mining operations across the world, although the impact is comparatively less than it is for platinum or rhodium, due to the geographical diversity of supply.
Output from Russia, the largest producer of palladium, has continued largely unaffected owing to the mines’ remote locations, although supply is still forecast to slip by 3% to 2.77 moz this year.
South African palladium supply is expected to fall by 24% to 1.94 moz as a result of the 21-day lockdown and the ensuing phased ramp-up across mining operations. North American supply is predicted to decline by 6% to just under 1.0 moz. Zimbabwe’s mines continued to operate throughout the lockdown and yield is forecast to remain at 385 koz.
Investment holdings in palladium ETFs have continued their declining trend and are down 110 koz year-to-date at 507 koz.
The global platinum market is forecast to move into a greater surplus in excess of 1 moz this year (excluding investment) owing to the effects of covid-19, with platinum demand expected to be the slowest of the PGMs to recover post-pandemic, Heraeus adds.
Platinum is relatively cheap, which has attracted renewed interest from investors this year. Platinum ETF holdings reached a record 3.6 moz in August, up 272 koz this year, after slipping close to 3.0 moz in April.
Global jewellery demand is projected to drop by 24% year-on-year to 1.60 moz in 2020, Heraeus says, while autocatalyst demand is estimated to slump by 26% to 2.11 moz. Industrial demand is forecast to be down by 305 koz or 16% to 1.58 moz in 2020, but 335 koz lower than the pre-covid estimate.
On the supply side, global platinum production is set to contract by 18% in 2020 to 5.05 moz as a result of covid-19 restrictions on mining operations.
The unplanned shutdown of the Anglo converter plant earlier in the year will exaggerate South Africa’s reduction in supply, which is set to fall 24% to 3.39 moz this year. Output from Russia and North America is forecast to slip by 3% and 7% respectively, while Zimbabwe, where mines were permitted to continue operating throughout the lockdown, could witness modest growth of 2% year-on-year.
The rhodium market is moving into a deeper deficit of minus 55 koz this year, Heraeus predicts. With supply impacted more than demand from the effects of covid-19, the deficit is wider than the minus 20 koz recorded in 2019 and will continue to provide support for prices in the near term.
Covid-19-related supply disruptions in South Africa, source of 80% of the world’s mine supply, have led to an estimated 19% reduction in global mine yield to 635 koz, which is the largest percentage decline forecast of all the PGMs this year. Production from South Africa alone is predicted to drop by 24% to 485 koz.
Output from Russia, the world’s second-largest producer, Zimbabwe, and North America is forecast to be little changed.
With the palladium market deficit set to narrow this year, Heraeus believes that the declines in automotive and industrial demand will cause prices to retreat to around $1,950/oz on average over the next six months.
The metal refiner also predicts an average price of $900/oz for platinum over the next six months owing to a significant oversupply, and $9,500/oz for rhodium over the same period with the anticipated market deficit due to production cuts from its no.1 mining source.