Global "lack of core" problem affects pond fish: platinum group metal prices have been hit hard

At a time of global chip shortage, apart from downstream manufacturing such as cars, platinum group metals such as palladium, rhodium and platinum are also hurt the most.

Analysts at CITI expect palladium, rhodium and platinum prices to remain under pressure in the future as global car production slashes, although palladium will be the most likely to rebound if chip supply picks up.

The shortage of chips affects the fish in the pond.

Palladium, rhodium and platinum are mainly used in automotive engine exhaust control catalysts. Specifically, platinum is mainly used in diesel exhaust catalysts, while palladium is mainly used in gasoline exhaust catalysts.

Market demand for palladium, rhodium and platinum has risen over the past few years as stricter vehicle emission standards have been imposed in China and Europe, causing prices to rise to new highs for the first time this year. In recent months, however, prices have fallen sharply as demand for palladium, rhodium and platinum has fallen sharply as a result of chip shortages that have forced many car companies around the world to stop production and cut production.

The prices of platinum, palladium and rhodium are all down from their highs at the beginning of the year.

So far, palladium has fallen from a record high of more than $3000 an ounce in May to about $2000, while rhodium has fallen to $12000 from a record high of nearly $30, 000 in March. Platinum fell to $950 an ounce from a seven-year high of $1336.50 in February.

Among the platinum group metals, palladium and rhodium are relatively deeply affected by automobile production reduction, while platinum is relatively slightly affected:

The annual consumption of palladium is about 10 million ounces, of which automobile production accounts for 80% of the total consumption;

The annual consumption of rhodium is about 1 million ounces, of which automobile production accounts for 90%;

The annual consumption of platinum is about 8 million ounces, of which automobile production accounts for about 40 per cent.

A report released by LMC Automotive, a consultancy, estimates that light vehicle production this year will be about 7 million fewer than originally expected.

Wilma Swartz (Wilma Swarts) of Metals Focus, an international derivatives think-tank, estimates that about 10-150000 ounces of palladium, 40-50, 000 ounces of platinum and 8000-10, 000 ounces of rhodium are needed for every 1 million light vehicles.

Based on this rough calculation, the reduction in light vehicle production this year will result in a reduction in demand for about 70-1.05 million ounces of palladium, 28-350000 ounces of platinum and 56000-70, 000 ounces of rhodium.

Palladium is the easiest variety to rebound.

Among the platinum group metals, palladium is the most likely to rebound, analysts say. However, the longer the chip shortage lasts, the deeper the impact on car production will be, and the weaker the palladium rebound will be in the future.

CITI analyst Oliver Nugent (Oliver Nugent) said platinum group metals may fall further in the near future, but prices are likely to rebound in 2022 and 2023, especially palladium. Because palladium has been in short supply for many years, this is very different from platinum and rhodium.

For most of the past decade, there has been a glut of platinum (light blue) and a shortage of palladium (dark blue).

Nugent said that in order to meet the current demand, many car companies have reduced the inventory of finished cars. When the supply of chips picks up in the future, automakers will need to replenish the inventory of finished cars, which means they will have to overproduce.

"the industry will replenish inventory in an all-round way," he said. If you want to make a profit from it, palladium is the best choice. "

Now, however, carmakers are trying to replace palladium with cheaper platinum and switch to producing emissions-free electric vehicles to save money.

Nikki Shears (Nicky Shiels) of MKS PAMP GROUP, an industrial and trade services company, said this meant that the longer it took to resolve the chip shortage, the less likely it was that palladium and rhodium prices would return to record levels.