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China auto slowdown may see palladium demand drop by 200,000 oz: analyst

London — China's auto manufacturing slowdown may result in palladium demand dropping by around 200,000 oz, putting a dent in the expected supply deficit this year, Standard Chartered's global research precious metals analyst Suki Cooper told S&P Global Platts in an interview.

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"We've tried to do some analysis around to calculate what slower auto sales in China mean for palladium demand," Cooper said.

"If we use the IHS forecast, that 1.7 million units could be lost if plants were closed until mid-March, we estimate the loss in palladium demand could be around 200,000 oz."

The analyst said it is "difficult because we don't know what the impact will be globally and what it means for auto supply parts."

Cooper said that could have a knock-on impact.

"But if we try to focus on the numbers that we have in terms of the China market, it suggests that it's not enough to erode the market deficit that we have forecast at the moment," she said.

Car sales in China saw the biggest monthly fall on record in February, as dealerships and showrooms saw a drop in customers due to the coronavirus outbreak.

According to data released from the China Passenger Car Association (CPCA) on March 4, average daily sales lifted towards the end of the month, though the CPCA said the first 16 days of February saw a 92% drop in sales.

Last week, the China Association of Automobile Manufacturers (CAAM) said that car sales in February had plunged by 82% year-on-year to 224,000 units. According to the Association, as of March 11 some 40% of the Chinese auto industry had restarted production.

Cooper said Standard Chartered is forecasting a deficit of 1.345 million oz.

"It doesn't alter that balance but what I think it does do in the near term, we are likely to see some softness in demand which means prices may come off a little bit but we think the downside should be well supported given that we think for the full year we are still likely to see a deficit market."

The Johnson Matthey palladium London spot price as of Tuesday 0900 GMT stood at $1,615/oz, falling 11.8% day on day. On February 27 palladium peaked at a record high of $2,840/oz.