South African mines announced closures Monday in response to the spreading virus. This pushed the palladium price up as investors feared a loss in future acquisition of the metal. On Tuesday, March 24, the palladium price saw a 10% jump. The next day, the palladium price jumped up to a 25% increase, making for the best day since 1997 when automakers began using palladium in catalytic converters.
What does the South African mine closure impact?
South Africa accounts for the majority of the world’s access to raw platinum group metals. This closure will affect production for all these metals, which include platinum, palladium, and rhodium. South Africa makes up 75% of the annual platinum supply, and 38% of the palladium supply. Rhodium from South Africa makes up 80% of the annual supply. These closures will put a strain on all platinum group metals in the near future, particularly as markets reopen.
Before the coronavirus crisis, palladium futures were up to about $2,800 an ounce this month with a supply deficit. Additionally, rhodium saw a high of $11,500 an ounce this month. It then dropped off to $2,000/oz and rose 50% to $4,000/oz this week after panic buying surged. Finally, platinum also saw a price jump up 11% on Tuesday.
Car Production, Palladium Price, and Platinum Group Metals
However, with the mines shutting down for twenty-one days, that will mean a 2% global supply drop for 2020. This is according to Dmitry Glushakov, head of metals and mining research at UTB Captial. He also projects this will negatively affect the magnitude of car sales for this year. Currently, it is unclear to what extent the mine closure will have for car production and sales in 2020.
Steve Dunn, Head of ETFs at Aberdeen Standard Investments, noted that demand will be down for now since cars are not in production at this moment. Despite this, there has always been a shortage of these metals. Now this shortage will become more apparent from the closure.
More recent announcements from South Africa on Wednesday included the information that they would continue to process platinum group metals during the lockdown. To what extent, we are not sure. Experts, however, say that these prices will boom once again when demand returns. This demand will most likely stem from industrial demand, particularly in India and China as they abide by the Paris Agreement to control greenhouse gas emissions.
As these countries will look to continue business as usual when it is safe to do so, some have called for their governments to lower tariffs on importing platinum group metals. In India, the tariffs rose around 3% as gasoline car production increased. This puts a strain on producers who are trying to work with the Paris Agreement.
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