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Heraeus Precious Appraisal

  • Edition 33 - 20. September 2021

Spring forward, Fall back?

The palladium and rhodium prices have suffered a sharp sell-off over the past two weeks after breaking through key support regions. They are now down 31% and 57% respectively from the peak in the spring. The last two times palladium reached a peak (in 2001 and 2008) it fell by 66% over the following 12 months. Rhodium has a greater tendency for needle-like price movements, and after the last peak in June 2008, it dropped 85% in the first year.

Post-Covid demand recovery, particularly from the auto market, is out of balance with supply. After the pandemicinduced production cuts PGM producers suffered last year, output from South Africa has now comfortably returned to ‘normal’ levels and, despite the reduction in Russian supply, refined palladium and rhodium output is still expected to record year-on-year growth in 2021. However, ongoing supply chain issues in the auto market and associated vehicle production losses are significantly hindering the recovery in auto demand for palladium and rhodium this year, which is weighing on prices.

The impact of the global semiconductor shortage on light vehicle production is now expected to be a loss of around 7 million units this year, with Q3’21 now representing the peak of the chip supply crunch. Automaker’s plans to play catch-up during the second half of the year have effectively been abandoned as the chip shortage shows no sign of easing. Rising Covid-19 cases and slow vaccination rates across SE Asia, which accounts for key parts of the semiconductor supply chain, are exacerbating the problem. A loss of 7 million units equates to a reduction in demand of almost 1 moz palladium and over 100 koz rhodium this year alone, which shifts the rhodium market into surplus.

Chip shortages are also now expected to extend into Q1’22, and possibly Q2’22, which has removed a significant volume of light vehicle units from the 2022 forecast as well. Both Intel and Infineon, major semiconductor manufacturers, have warned that the issue may persist throughout the whole of 2022. If the situation in 2022 deteriorates, it could push the palladium market into surplus and increase rhodium oversupply.

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