Recent Palladium and Platinum Price Spikes Don’t Have Many Reasons to Keep On

The price of palladium soared as much as 8%, while platinum surged by nearly 5% as major positive sentiment pushed markets upside, stocks and cryptocurrencies included. Precious metals unexpectedly registered gains on their way to recovery following the shock caused by the discovery of the Evergrande Real Estate's over-indebtedness earlier this week.

At its highest points, Palladium jumped by almost 8% to $2,057.66 per ounce, while platinum rose by 4.95% to $1,004.25 an ounce. Palladium has lost 33% since the end of April, while platinum has declined 23% over the same period. What is the near-term outlook for platinoid metals?

Regrettably, in 2021, the automotive market is not in its best shape. Due to the shortage of microchips and inflationary growth of the main component costs and frequent assembly interruptions, worldwide production of cars has been declining. Most industry forecasts remain disappointing. According to an estimate provided in a study by The Boston Consulting Group (BCG), global car production will decrease by 7-9 million units by the end of 2021. BCG believes that the supply of microchips will not stabilize until the second half of 2022. Until then, car production will be held back due to a lack of components. The decline in car production is negatively affecting the consumption of palladium and platinum. This is the reason for the negative dynamics of metal prices, which is observed in the II-III quarters of this year. The demand situation is expected to prevail. Based on the existing forecasts, an improvement in the situation in the automotive market, and hence an increase in consumption of platinoids, should be expected no earlier than the second half of 2022. At the same time, prices for platinum may be less volatile, because automakers are accountable for only about 40% of the metal demand. More than a quarter of consumption is accounted for by the jewelry industry, where the situation is expected to stabilize at its lackluster point. An additional risk for metals is the prospect of curtailing monetary stimulus by the U.S. Federal Reserve, which could spur the dollar's strengthening and put pressure on all commodity markets.

The most tangible effect can be observed between Q4 2021 and Q1 2022. Thus, one cannot expect a quick recovery in prices for platinum and palladium yet. The first more or less stable movement towards growth can develop only in the second quarter of 2022 against the background of the expected recovery of the automotive industry. At the same time, the timetable for the winding down of the QE program will be important, which will affect all commodity markets in the world.