Even a coronavirus crisis can't puncture palladium prices: Reuters poll

LONDON (Reuters) - Analysts and traders have raised their forecasts for palladium prices, predicting the metal will remain undersupplied even as the coronavirus outbreak hammers auto makers, reducing demand, a Reuters poll showed on Monday.

But poll respondents downgraded their predictions for platinum, which is expected to remain in surplus.

The sister metals are used mainly in engine exhausts to reduce harmful emissions, though platinum is also used by jewellers.

Prices have whipsawed as virus containment measures shuttered car plants, spooked markets and disrupted supply routes, particularly from top producer South Africa.

Palladium XPD= surged to a record high of $2,875.50 an ounce in February, plunged to below $1,500 in March, then rebounded to around $2,200.

Prices will average $2,100 an ounce this year and $2,150 in 2021, according to the median result from a poll of 24 analysts and traders conducted this month.

A similar poll in January forecast averages of $2,000 this year and $1,700 in 2021.

“The palladium market is still in a deficit,” said INTL FCStone analyst Rhona O’Connell, and demand should revive as the global economy recovers.

“But the effervescence of the past few years” - prices surged more than six-fold between 2016 and 2020 - “is in all probability behind us,” she said.

The roughly 10.5-million ounce a year palladium market will see a deficit of 500,000 ounces this year, said Robin Bhar, an independent analyst.

Refinitiv GFMS predicted a 883,000-ounce shortfall, while Capital Economics said it expected a surplus of 300,000 ounces.

Palladium has benefited in recent years from a tightening of emissions standards that require auto makers to use more metal per vehicle. Auto makers account for around 80% of palladium use.

By contrast, platinum is used mainly in diesel vehicles that have fallen in popularity since 2015, when Volkswagen was found to have cheated in emissions tests, and its use in jewellery has decreased.

Platinum prices XPT= plummeted in March to $558, the lowest since 2002, before pulling back to around $770.

The poll predicted platinum would average $836 an ounce in 2020 and $945 in 2021 – a sharp downward revision from forecasts of $948 and $1,013 in the poll three months ago.

(Graphic: Platinum and palladium prices IMAGE link: )

Weaker economic growth because of measures to contain the novel coronavirus is likely to lead to lower consumption by auto makers, jewellers and other industrial users, such as glass makers.

“The scale of the demand-side destruction, along with the negative long-term chart set-up, suggests that downside price risks remain,” James Moore at Fastmarkets said.

Demand should gradually recover, driven in part by auto makers replacing some palladium with cheaper platinum, Saida Litosh at Refinitiv GFMS said.

Yet she still predicted surpluses in the roughly 8-million ounce a year market of 557,000 ounces this year and 670,000 ounces in 2021.

Reporting by Peter Hobson; Editing by Veronica Brown and Barbara Lewis