INTERVIEW: Palladium surplus on the cards:Natixis

London — As the coronavirus forces car manufacturers worldwide to halt production lines, the palladium market may potentially be in surplus this year as a result of sharply weaker demand from the auto sector in the second quarter, Natixis Global Markets Research Senior Commodities Analyst Bernard Dahdah told S&P Global Platts.

"I wouldn't be surprised to see an 80% drop in Europe and the US in terms of car sales and to have depressed sales for at least till June, and wouldn't be surprised if this year will potentially be in a [palladium] surplus as a whole," Dahdah said.

This month, the China Association of Automobile Manufacturers said auto sales in February plunged 82% year on year to 224,000 units.

The major industrial use of palladium is in making vehicle auto catalysts, with the precious metal used to make the components in gasoline-powered vehicles, the most commonly used in the US and China.

"I think for the next few months to come, I don't see demand from the autos, which are shutting down their productions plants; there is no demand there," Dahdah said.

"And on top of that we are not even sure that if they start producing cars, they will be producing at the same level, because demand for cars is going to be expected to be weak for at least for Q2 and Q3."

US and Europe shutdown meltdown

According to last month's Johnson Matthey report, total gross demand for palladium, excluding recycling with 3.4 million oz coming in, stood at 11.5 million oz, with autocatalysis demand standing at 9.67 million oz.

With governments executing lockdowns to the spread of COVID-19, a number of the automaker shutdowns appear to be long term.

This week, Ford Motor Company said it is not planning to restart its plants in North America on March 30 as originally planned, while Toyota Motor North America plans to temporarily suspend production in all of its North American manufacturing and component plants from March 23 to April 5.

SMMT, the UK Society of Motor Manufacturers & Traders, told Platts that the following car manufacturers have implemented temporary shutdowns: Aston Martin, Bentley, BMW, Honda, Land Rover, Nissan, PSA, Rolls-Royce and Toyota.

In Russia, PAS and Volkswagen have suspended car plant operations until April 10, while in France, Germany and Italy, most steel plants have temporary shut down or are working at their lower historical rates.

At German steelmakers Saarstahl and Dillinger, around 60% of Saarstahl's products are produced for the automotive industry and the mill does not expect car manufacturers to restart their production before the Easter holidays.

Last week, German automaker Volkswagen said it would halt all production in Europe for at least two weeks, while Daimler, FCA, and Renault announced temporary closures.

Q2 not looking good

"Car sales for Q3, even if we get a rebound, I doubt we'll see massive bumper sales, or a bumper month, unless someone comes up with a vaccine and they say this will never happen again, or there will not be a second [coronavirus] wave," Dahdah said.

The analyst said he is leaning toward a viewpoint that 2020 is going to be almost a lost year for the auto market.

"I think Q2 is going to be horrendous," he said. "For the month of March, April and May, in France there is the potential shutdown until the first week of May, Italy also till May and Spain until April 11."

"So in terms of automobiles sales, 27% of aluminum demand is automobile, 80% of demand of palladium is also automobile, so I think metals are going to be very heavily hit," Dahdah added.