Platinum and palladium prices should both strengthen, although palladium will remain far more expensive than its sister metal, Commerzbank said Tuesday in an updated forecast for platinum group metals.
The report, written by analyst Carsten Fritsch, predicted that platinum prices will rise in line with gold, while palladium will benefit from a recovery in auto demand. Both metals are used in auto catalysts, although palladium has benefited more in recent years since this metal is used in catalytic converters for gasoline-powered vehicles that are popular in the No. 1 and No. 2 car markets of China and the U.S.
Earlier this year, there was a huge divergence between the two metals, with palladium racing to a record high of around $2,880 an ounce, making it roughly three times more expensive than platinum. Palladium is well down from that peak after the COVID-19 pandemic dented industrial demand, but still remains around 2.3 times more expensive than platinum.
Platinum should hardly be able to reduce its undervaluation significantly due to the still unfavorable fundamental data,” Commerzbank said, noting the metal has had a structural supply surplus for years. “At best, we expect platinum to perform in line with gold.”
The World Platinum Investment Council said platinum had a supply deficit last year, but this was only due to improved demand from exchange-traded products rather than physical demand, Commerzbank noted. This year, demand from the jewelry and auto sectors are expected to decline, particularly amid the pandemic, analysts said. Meanwhile, investment demand is not expected to be as strong as in 2019. In fact, Commerzbank pointed out, ETFs had outflows of platinum during the first five months of 2020.
Commerzbank looks for platinum to recover to around $900 an ounce by year-end, then reach $1,000 next year.
“In the case of palladium, the correction we had expected has occurred,” Commerzbank said. “The recovery of the global economy and thus also of automobile production suggests that palladium demand will rise again. As a result, the palladium market could again show a larger supply deficit next year.
“Therefore, the palladium price should rise to $2,000 per troy ounce by the end of the year. The price recovery should continue next year. However, the record high should remain out of reach.”
The palladium market has been in a supply deficit for several years as demand rose steadily, Commerzbank said.
“The most important driver was demand from the automotive industry, which reached 8.9 million ounces last year and thus now accounts for more than 80% of total palladium demand,” Commerzbank said. “The latter benefited for a long time from the rising demand for cars with gasoline engines. Last year, however, the sales figures stagnated or fell. This was offset, however, by an increase in the use of palladium in auto catalysts in order to comply with stricter emission standards.”
Going forward, palladium’s supply deficit likely will rise again as the auto industry recovers from this year’s pandemic-induced slump, analysts added.