Platinum and palladium. Reasons for the decline and prospects for growth

Platinum and palladium. Reasons for the decline and prospects for growth

Address for questions and suggestions about the site: [email protected]

Copyright © 2008–2021. LLC "Company BKS" Moscow, Prospekt Mira, 69, building 1 All rights reserved. Any use of site materials without permission is prohibited. License for brokerage activities No. 154-04434-100000, issued by the Federal Commission for the Securities Market of the Russian Federation on January 10, 2001.

The data is exchange information, the owner (owner) of which is PJSC Moscow Exchange. Distribution, broadcast or other provision of exchange information to third parties is possible only in the manner and under the conditions provided for by the procedure for using exchange information provided by Moscow Exchange OJSC. Brokercreditservice Company LLC, license No. 154-04434-100000 dated January 10, 2001 for brokerage activities. Issued by the Federal Financial Markets Service. No expiration date.

* The materials presented in this section do not constitute individual investment recommendations. The financial instruments or transactions mentioned in this section may not be suitable for you and may not correspond to your investment profile, financial situation, investment experience, knowledge, investment objectives, risk appetite and return. Determining the suitability of a financial instrument or transaction for investment objectives, investment horizon and risk tolerance is the responsibility of the investor. BKS Company LLC is not responsible for possible losses of the investor in the event of transactions or investing in financial instruments mentioned in this section.

The information cannot be considered a public offer, an offer or an invitation to purchase or sell any securities or other financial instruments, or to make transactions with them. The information cannot be considered as guarantees or promises of future investment returns, risk levels, costs, or break-even of investments. Past investment performance does not determine future returns. This is not an advertisement of securities. Before making an investment decision, the Investor must independently assess the economic risks and benefits, tax, legal, and accounting consequences of entering into a transaction, his readiness and ability to accept such risks. The client also bears the costs of paying for brokerage and depositary services, submitting orders by telephone, and other expenses payable by the client. The full list of tariffs of BCS Company LLC is given in Appendix No. 11 to the Regulations for the provision of services on the securities market of BCS Company LLC. Before making transactions, you also need to familiarize yourself with: notice of risks associated with transactions on the securities market; information about the client’s risks associated with making transactions with incomplete coverage, the occurrence of uncovered positions, temporarily uncovered positions; a statement disclosing the risks associated with conducting transactions in the market for futures contracts, forward contracts and options; declaration of risks associated with the acquisition of foreign securities.

The information and opinions provided are based on public sources that are recognized as reliable, however, BKS Company LLC is not responsible for the accuracy of the information provided. The information and opinions provided are formed by various experts, including independent ones, and opinions on the same situation can differ radically even among BCS experts. Given the foregoing, you should not rely solely on the materials presented at the expense of conducting independent analysis. BKS Company LLC and its affiliates and employees are not responsible for the use of this information, for direct or indirect damage resulting from the use of this information, as well as for its accuracy.

Is palladium worth buying?

In February of this year, palladium prices in London exceeded $2,800/ounce due to a significant shortage of metal for spot supplies. Many investors have been following the impressive trend as they search for good entry points into the market. Any downward price corrections were used for buying, which warmed up the market even more. At the end of February, palladium prices reached their peak, and three weeks later they sharply dropped to $1,300/ounce under the influence of news from China about the development of coronavirus infection. Since then, the market has recovered to $1900/oz and is not yet willing to rise further, and investors often ask the question of whether palladium is worth buying...

The development of COVID-19 has dealt a significant blow to the palladium market, both from the consumption and supply sides. According to UBS bank, so far 10% of the world's palladium supply remains closed and 29% is being restored. Weak demand so far compensates for the lack of supply - it is estimated that 80% of palladium consumption in the automotive industry was affected by the introduction of quarantine measures.

A sharp drop in car production and sales in the world, and especially in China and the USA, has reduced demand for the metal. The delay in introducing new vehicle emission standards also has a negative impact on demand. In China, the introduction of the new China 6a standard, previously scheduled for early July 2021, was postponed by 6 months until January 1, 2021. The introduction of new standards in India and the USA is likely to be delayed.

If you look at the palladium chart from the technical side, you can see that the growing trend since February can be considered broken. Prices are recovering after significant corrections, but the market can no longer go above the historical high. This suggests that there is no longer an acute supply shortage in the palladium spot market.

At the same time, metal imports into China remain stable, and the Chinese automobile market has begun to recover. Retail sales of passenger vehicles in China rose 1.9% year-on-year to 1.64 million units in May, according to CPCA data. Palladium imports to China in April amounted to 5.02 tons versus 1.5 tons in April 2021 and 3.25 tons in March 2020. Palladium supplies to China from Russia in April increased 4 times y/y, but remained at 94 % lower than March 2021. Hong Kong's net palladium imports in April were 2.38 tonnes, up from 0.17 tonnes in March, but April imports remained 50.4% lower than a year ago.

In addition, in April, Switzerland became a net exporter of palladium for the first time in the last three months - export volumes were 3.3 times higher than last year. Palladium supplies to Switzerland from Russia increased 3 times YoY, but remained 46% lower than in March 2020.

Despite the recovery in metal flows to China, the palladium market is showing weakness. The decline in car sales around the world is pushing the market towards equilibrium or even a surplus. This is what the market leader is worried about: Norilsk Nickel gave an updated assessment of the palladium market during a recent industry conference.

According to Norilsk Nickel, the palladium market will be balanced this year after several years of shortages, but a surplus is not expected until 2021. Despite the pandemic, there is no surplus of palladium. The normalization of demand will depend on the pace of recovery in the automotive industry, where palladium consumption is “disappointing.” At the same time, in May, according to Norilsk Nickel, demand for palladium increased. Palladium consumption in 2021 will be 9.2 million ounces (-16% YoY), and global auto sales will decline by 22% YoY to 70 million units.

In addition to the virus factor, the market is under pressure from excess supply, since the quarantine was not actually complete, and most manufacturers continued to operate at 50% capacity. The decline in demand will be partially offset by problems with the supply of platinum group metals from South Africa caused by force majeure at Amplats, problems with energy supplier Eskom and quarantine shutdowns in that country. Global supplies are estimated at 9.3 million ounces (-12% YoY).

Given the lack of transparency around palladium production around the world and ongoing uncertainty regarding economic recovery, it is extremely difficult to accurately assess the market's prospects. Investment demand for palladium has been relatively weak recently, with holdings in palladium ETFs down about 9% in the second quarter compared to the first quarter of 2021, which can be attributed to challenging market conditions and limited liquidity.

The consensus forecast for the average annual price of palladium in 2021 is $2,100/ounce, in 2021 - $2,150/ounce. It is believed that prices will recover until the end of 2021 and in 2021. According to the Otkritie-broker calculation model, the cost of palladium by the end of 2020 may be close to $2000/ounce, and in 2021 it will be $2100–2200/ounce. However, the risks of the price moving below the strong support level of $1800/ounce are still high.

Palladium prices – news and forecasts

If you want to assess the movement of palladium prices, then you should pay attention to the news background. Here are some factors to consider when trading palladium:

• Norilsk Nickel is the largest palladium mining company, so it is important to monitor their production data. This can provide insight into the current supply situation. For example, in April the company raised its production forecast for 2021.
• Russia and South Africa are the two countries with the largest reserves of palladium. Logistics, inventory and international trade relations play a key role in the palladium market. Traders need to monitor the geopolitical situation in these countries
• Emission control policies are also important for palladium prices. Legislation in this area varies from country to country. The US, EU, China and India are the largest markets for palladium, so it is wise to monitor emission regulations in each of these regions.

Spot palladium prices have been rising continuously since 2016.

Palladium prices have skyrocketed 398.25% since 2021, making it one of the top commodity assets. In terms of growth among precious metals, palladium has surpassed gold, silver and platinum.

The chart above shows the returns of precious metals relative to the time over which those returns were achieved.

Spot palladium prices have already increased by 398% percent over 6 years. By comparison, gold gained just over 200% in price during the same time.

What's next for palladium and in the long term?

The charts look very attractive, but traders should be wary. Despite the impressive and continuous growth of this market, a possible correction must be taken into account. The main question is: have spot prices reached their highest point? And there is no direct answer here - the market is influenced by a large number of factors.

Let's take a closer look at the state of the palladium market and assess what can be expected from it in the future.

Summary indicators of exchange rate changes by month

Beginners and experienced investors are interested not just in the price of the metal at the end of the year, but in the price dynamics over several months. Such information is best studied using tabular values. It is important to remember that the table shows only one of many forecasts, and not some guaranteed price for each month. Moreover, there are no specific values ​​for the cost of the metal - only monthly percentage changes in the exchange rate are indicated. It is also worth paying attention to the fact that the dates are divided into 2 groups: from the 1st to the 15th and from the 16th to the end of the month.

It is important to remember that large investments in palladium already have obvious risks. If, due to a shortage of this metal, its cost continues to rise rapidly, then manufacturers will be forced to replace palladium in autocatalysts with platinum, which can perform similar functions. Consequently, in such a situation, the demand for it will fall, which will lead to a rapid decline in prices. A negative exchange rate chart can demonstrate both the discovery of a new deposit and an increase in the efficiency of production at old mines. At best, this can curb price increases; at worst, it can bring down the cost per ounce by several hundred dollars.

The palladium price forecast for 2022 separately by month will be more accurate than for this entire period. Investors should always remember that long-term forecasts always have the risk of being unreliable due to the large number of influencing factors multiplied over many months and days. At the same time, the general trend is usually visible even in a long-term forecast; all that remains is to monitor current changes in the value of the metal.

Palladium price forecast in 2021-2022

While long-term forecasts point to further price increases, there is enough daily volatility in the palladium market to provide attractive short-trading opportunities.

The chart below shows how palladium traded between $2,500 and $2,160 for 7 months before rising to an all-time high of $3,000.

A change in rate in the medium term can only be expected if we see a sustained fall below $2,160. In this case, you can expect a drop of more than 44% from the highs. However, such a “bearish” scenario is possible only if some fundamental problems arise in the commodity market. Today, prices are being adjusted, but the upward trend still persists. And as long as the price of palladium remains around $2,500, further growth can be expected.

At the moment, the market is experiencing a shortage of palladium, and until it is covered or demand decreases, prices will remain at a fairly high level.

With Capital.com you can trade palladium through CFDs. This financial instrument will give you the opportunity to earn on price changes, without directly owning the asset. Explore all the possibilities of CFD commodity trading with our educational materials and start executing your own trades.