The price of palladium regained ground and moved back above US$2,000 per ounce at the end of March after the coronavirus buffeted the market in the middle of the month.
The precious metal's price fell as low as US$1,557/oz on March 16, having exceeded US$2,600/oz at the start of the month, according to London Bullion Market Association data. The price had settled at US$2,242/oz by the afternoon of March 30.
"We've had quite the rally in palladium, back above [US]$2,300/oz," Standard Chartered precious metals analyst Suki Cooper told S&P Global Market Intelligence. "There are quite a few opposing forces at play for the [platinum group metals] in the current environment."
The coronavirus pandemic has pulled the market in opposing directions with falling car demand on one hand and supply cuts in South Africa on the other, according to Market Intelligence mining analyst Jason Holden. If South African mine closures are extended, which may be the case, then the reduction in supply will cause an even larger deficit, Holden said.
The automotive sector accounts for over 80% of palladium's primary usage, according to the World Platinum Investment Council. The precious metal historically functioned as a cost-effective alternative to platinum in catalytic converters until its price eclipsed its sister metal.
The 21-day closure in South Africa is expected to translate into a curtailment of between 3% and 4% of global output, according to a March 27 note from Moscow brokerage Aton analysts Andrey Lobazov and Maria Fedorova.
Standard Chartered previously highlighted that current estimates for the decline in global automobile production were not sufficient to swing the palladium market into surplus but could exacerbate the oversupply of platinum.
S&P Global Ratings expects global light vehicle sales to slump nearly 15% in 2020 to less than 80 million units in light of the coronavirus pandemic. This would be a deeper loss than during the 2007 to 2008 global financial crisis, according to Cooper, and would therefore reduce the deficit.
"While there have been downgrades to demand forecasts, the supply side has not escaped unscathed," Cooper said. "South Africa produces just under 5% of global gold supply, around 40% of palladium supply and 73% of global platinum supply." The country vies with Russia to be the largest producer of palladium.
|The southern part of the Norilsk-1 PGM deposit in northern Russia.
Source: Russian Platinum LLC
"With current projections for supply losses and demand losses, palladium's deficit looks set to fall but remain undersupplied," Cooper concluded.
The structural changes underway in the global automotive market are likely to be delayed but not annulled by the coronavirus pandemic, according to Aton's analysts. They highlighted PJSC Norilsk Nickel Co.'s "unique exposure" to both electric and conventional vehicles via production of nickel, copper, palladium and platinum. Palladium accounted for 39% of the Arctic mining group's metal sales in 2019.
It is almost impossible to model the market balance right now because no one knows how long the shutdowns, on both the supply and demand side, are going to last, Norilsk's investor relations officer, Mikhail Borovikov, told Market Intelligence.
South Africa accounts for about 25% of global palladium supply including recycling, according to Borovikov, while Europe and the U.S., where most car factories have been idled, consume roughly 40% of the metal. Norilsk produces roughly 4.5 grams of palladium for each gram of platinum, while South African deposits tend to have a higher content of platinum.
"Norilsk doesn't plan any shutdowns as the city is pretty much isolated and not a single COVID-19 case is reported there so far," Borovikov said.
The mining group's plans to develop the world's largest greenfield PGM cluster with partner Russian Platinum LLC recently suffered a setback when Russian aluminum giant United Co. Rusal PLC, which has a 27.8% holding in Norilsk, effectively vetoed Norilsk's involvement. Russian Platinum now plans to tackle the Arctic Palladium project alone, potentially slowing commissioning of the mines and exacerbating the palladium market deficit.