LAWRIE WILLIAMS: Metals Focus predicts pgm average price weakness ahead.
London specialist precious metals consultancy, Metals Focus, has released its ‘inaugural’ platinum group metals focus report for 2022 – inaugural because it includes analysis of the rhodium market for the first time. It is marginally negative for all the three metals covered, but not so much so that the negativity does not fall within a possible margin for error. Given the volatility affecting the global economy and the markets today, there is certainly room for such price pessimism to be misplaced. This would be particularly so with any knock-on effects from the Russia/Ukraine war, and sanctions impositions on the former nation, which is a major global producer and exporter of platinum group metals to world markets.
Russia has been the world’s top palladium producer for many years, but may have been overtaken, just, by South Africa last year. Russia is definitely the second largest producer of platinum and rhodium – again just pipped by South Africa, as well, so any such supply interruptions would be hugely significant in terms of global supply/demand balance.
According to the Metals Focus figures, all three of the platinum group metals recovered recorded supply surpluses in 2021 in palladium’s case after several years of severe supply deficits which had taken the palladium price to around double that of platinum. However the consultancy anticipates a return to a deficit this year for palladium and rhodium and a much smaller surplus for platinum. This should see average prices for all three metals lower this year than last with platinum down 9% on overage to $990, 4% for palladium to $2,290 and rhodium down 12% to $17,750 on average. However, as the reader will have ascertained, all is not doom and gloom for the pgms as these predicted average levels are all higher than the current spot prices for the three metals.
The consultancy’s head of pgm research, Wilma Swarts, does warn, however, of three specific potential risks to these price forecasts in particular. Firstly, there is the possible adverse impact of Russia’s Ukraine war and any potential related sanctions interruptions to supply. Secondly, there is the ongoing indirect impact of the conflict on the supply chain, with particular prominence on the automotive supply chain. Third, there is a possible impact of China’s continued zero-COVID policy on economic activity in that country and consequent pgm demand. All these are factors that could weigh on pgm demand to varying degrees.
It is worth noting here that Russian pgm exports have not, so far, been directly targeted by the West, but there is always the chance that they could be added to the sanctions regime, or exports banned by Russia as retaliatory action. Certainly China, which is not party to the Russian sanctions, could probably take more Russian pgm exports, particularly given that it is probably the largest global automobile market at present, although growth in this sector is likely being curtailed for the time being by the country’s zero-Covid policies and draconian lockdowns in some major cities.
The supply chain issues which have been affecting automotive sector sales mean that recycling has been adversely impacted with reduced availability of scrap vehicles and palladium demand is also being affected in its largest market by substitution by currently far less costly platinum in the autocatalyst sector with the boot currently very much on the other foot. The threat of recession brought on by high inflation will probably put a dent in prospective auto sales volumes as the year progresses, which is also a potential downside for palladium and rhodium in particular.
We thus suspect that the Metals Focus analysis, although it suggests lower average prices for all three major pgms this year, may actually be on the optimistic side. Short of some major supply interruptions from Russia or southern Africa, we are predicting a difficult year for investment in pgms, with perhaps platinum, with its more diverse range of industrial applications may be best placed to buck this trend.