Palladium to end the year stronger at $3000, platinum to suffer a fall to $900 – CE

The recent disruption to global auto production stemming from ongoing semiconductor microchip shortages poses a downside risk to Capital Economics’ price forecasts for platinum and palladium. The bank maps out the potential impact on demand for the metals from three different scenarios.

Palladium market to keep in a deficit, platinum market to see a much stronger revival in global supply

“Our central scenario assumes the chip shortage limits vehicle production to around 80% of Q4 2020 levels in Q2 before easing, with the shortage fully relieved by mid-2022. In our upside scenario, vehicle production remains close to current levels this quarter, and the shortage is alleviated by end-2021. In our downside scenario, the shortage worsens, only improves from Q4, and is not fully resolved until end-2022.”

“The key takeaway is that under all of the scenarios, the shortage isn’t a reason to change our view that the palladium market will remain in a sizeable deficit for the next couple of years, but it increases the size of the surplus we are expecting in the platinum market this year.”

“The scale of the surplus we think is possible in the platinum market this year supports our forecast for the price to fall to $900 per ounce by end-2021, from about $1,200 now.”

“While the range of outcomes in the palladium market is much larger (owing to the larger share of demand derived from the auto industry), the fact that we think that the market deficit will remain close to its current level underpins our forecast for the palladium price to end this year at $3,000 per ounce, up slightly from ~$2,800 now.”