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Trade issues to drive palladium, rhodium prices in 2020: sources

Washington — Though factors like rising emissions standards and regional supply shortages helped palladium and rhodium reach multiyear highs in 2019, most market players expect international trade factors to drive prices in 2020.

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Commodities 2020 | S&P Global Platts

The Platts New York Dealer rhodium price is up nearly 147% year to date, while the Platts New York Dealer palladium price is up nearly 52% year to date.

Nearly 80% of rhodium and palladium demand comes from the global automotive industry, which uses in the metals in catalytic converters to control emissions of greenhouse gases and pollutants.

Market sources throughout 2019 cited several fundamentals factors for the increase.

"It's very short-supply driven," one US dealer said of rhodium and palladium. "You had mine strikes in South Africa adding to the shortage. That's why we're seeing the price increases."

Other factors cited include steady automotive demand, especially in Asia; periodic shortages of palladium ingot in London and Zurich; and rising emissions standards China, India, Europe and North America.

TRADE ISSUES

But many refiners, dealers, recyclers and producers believe global trade issues will guide palladium and rhodium prices in 2020.

One European refiner said global trade issues were foremost on his mind, especially any short-term or long-term trade agreements between the US and China.

Many analysts agree that a long-term trade agreement between the countries would greatly benefit the global automotive sector, especially in the face of slowing global economic growth.

To that end, analysts with S&P Global Ratings in a mid-November report said they did not expect any growth for the auto industry in 2020 and 2021, citing ongoing geopolitical risks related to trade.

"Global economic growth is likely to continue to moderate during the next one to two years as weak manufacturing activity and geopolitical tensions hurt consumer confidence, holding back purchases of big-ticket items," S&P Global Ratings analysts said.

"We have therefore lowered our assumption for light vehicle sales in the major markets, and we expect virtually no growth in global light vehicle sales over the next two years," they said. S&P Global Ratings, like Platts, is a division of S&P Global Inc.

The European refiner also cited concerns about how Brexit in late January might affect automotive trade between the UK and the European Union, and whether the recent UK elections and the November 2020 US elections would affect trade policy.

A second European refiner said he was watching whether the US would eventually levy tariffs on European automobiles.

FUEL EFFICIENCY

A third European refiner wondered how improving fuel efficiency would affect the short- and long-term demand for palladium and rhodium.

"What's going to happen with fuel-efficient cars like battery-driven vehicles? Will those [sales] numbers improve? That will affect prices in the long-term," the refiner said of palladium and rhodium.

Hybrid-electric vehicles (HEVs) and plug-in hybrid-electric vehicles (PHEVs) have catalytic converters, whereas battery-electric vehicles (BEVs) and fuel-cell vehicles (FCVs) do not.

Analysts with S&P Global Ratings said stricter environmental regulations will likely drive new product pipelines in Europe and China, where competitive pressures will rise in 2020-2021.

S&P FORECASTS

Global sales of light passenger vehicles are expected to rise 0%-1% over 2020-2021, according to S&P Global Ratings. China sales are expected to grow 1%-3%, while sales in Europe are expected to be flat over the period, according to S&P Global Ratings analysts.

US sales are expected to decline 1%-3%.

"We anticipate light-vehicle sales volume will drop by nearly 3% year over year to 16.4 million units in 2020 and further to 16.3 million units in 2021, the lowest level since 2014," S&P Global Ratings analysts said.

They said their figures were anchored on a higher probability of a recession 12 months out, now at 30%-35%, compared with their previous assessment of 20%-25% in May.

Commodities 2020 | S&P Global Platts

-- Nick Jonson, nick.jonson@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com