Palladium prices slip on auto consumption worries

Palladium prices have been on a downtrend for over a month now as prolonged concerns about demand from the automotive sector weigh on sentiment, with some market participants anticipating further declines in the near term.

Overall, prices have fallen by 11.3pc since 23 July, to $2,435/oz today from $2,745/oz, according to UK-based speciality chemicals producer Johnson Matthey. The market is choppy — in part owing to low liquidity — with today's price up by $110/oz from yesterday but still down sharply from the highs of recent months.

The decline is largely underpinned by sentiment, as the spread of the Covid-19 Delta variant hampers economic recoveries globally and dampens consumption outlooks across the platinum group metal (PGM) suite. PGMs can be more reactive to sentiment than many other metals, more so when spot liquidity is particularly low and prices are therefore more prone to jolt sharply.

The spread of the Delta variant in southeast Asia is amplifying concerns about the impact of the pandemic on the automotive sector going forward, and therefore the sector's demand for PGMs used in catalysts. Vehicle production globally has already dropped significantly amid this year's semiconductor shortage, with Japan's Toyota last week confirming a 40pc production cut globally, a "double blow for Asia's automakers", according to German technology group Heraeus Precious Metals.

"Palladium was hard hit last week, losing almost $300/oz over the course of three days," Heraeus said. "Signs of a slowing Chinese economy combined with Toyota's latest announcement are likely to be weighing heavily on the market."

In the longer term, some market participants are also concerned that technological developments will allow for increased use of platinum rather than palladium in catalytic convertors, heightening the risk of product switching. Platinum, the lower priced of the two, has traditionally been regarded as less effective in automotive catalysts than palladium but as this starts to shift the price spread between the two metals is likely to attract closer scrutiny and impact movements. Platinum prices are currently at $1,020/oz, up slightly after slipping below $1,000/oz last week, according to Johnson Matthey.

Last year, Germany's BASF developed its Tri-Metal catalytic convertor — produced in conjunction with PGM producers Impala Platinum and Sibanye Stillwater — which upped the amount of platinum and cut the palladium content in its catalyst.

The recent downturn in palladium prices has taken some onlookers by surprise, with several analysts having held a bullish stance mid-year after the steep PGM price rallies of the previous 12 months, buoyed by expectations that steady Covid-19 vaccine rollouts would boost consumption. But the mood appears to have now changed, with Heraeus among others saying that the outlook for the second half the year is now "weaker than anticipated only a few months ago and the price could slip further".

By Yusuf Khan

Automotive woes weigh on palladium prices $/toz