London — As a result of governments executing lockdowns and automakers worldwide implementing temporary shutdowns, the palladium deficit is very close to balancing-out, though not yet in surplus, Standard Chartered Bank precious metals analyst Suki Cooper told S&P Global Platts in an interview.
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"There's been a lot of pull-and-push shocks on the supply and demand side for all of the platinum group metals, but at this stage it looks like the palladium market is still under-supplied but not to the same magnitude," Cooper said.
"I think it's the auto side that is going to be the key driver, especially for palladium, and any losses in demand are going to be exacerbated if substitution materializes this year."
However, the analyst said the big question at present remains how large will the auto production losses be given the current market conditions.
"If we assume it was similar to the Global Financial Crisis then the market stays in deficit, but if it's a 20% decline in auto sales then the market moves into a surplus, if it's 15% then it closer to a balance."
According to Johnson Matthey's February report, total gross demand for palladium in 2019 stood at 11.5 million oz, including autocatalysis demand at 9.67 million oz,, while recycling came in at 3.4 million oz, leaving total net demand at around 8.09 million oz.
South African PGM mines at present account for 38% of the global palladium supply at 2.65 million oz, behind Russia, and are the world's largest supplier of platinum, with three-quarters of the market.
Driver on demand side for palladium
Though South Africa's government moved to implement a 21-day lockdown, effective from midnight March 26, to help curb the spread of COVID-19, over the past week open-pit mines, smelters, concentrators and refineries have been allowed to carry on production at reduced starting levels.
"With the South Africa losses for palladium, the losses are greater for platinum but even then I think platinum stays in surplus, but for palladium the big driver is really on the demand side rather than on the supply side," Cooper said.
With European automakers still in shutdown mode and signs of disruption in supply chains, and perhaps even government involvement potentially needed to shift unsold auto stock, even a drop of 25% or 30% or more in auto sales could be contemplated.
"If we saw a 40% decline on a global basis you would see the palladium market swinging into a surplus," Cooper said.
"There would be some inventory in various locations, which means end-users may not need to buy straight away, so you may see a bit of a lag in demand appetite, which is perhaps what we saw initially when palladium prices were being pressured lower but I think it really concerns on the demand side."
The Johnson Matthey palladium London spot price, as of Wednesday 0900 GMT, stood at $2,238/oz, up 1.3% day on day. The platinum London spot price was unchanged at $748/oz, while the rhodium London spot price was $7,700/oz, down 7.2%.