Wallace Refiners has launched its 2021 Outlook, which offers the most comprehensive coverage of precious metals markets in the new year. Trillions of dollars were pumped into financial markets in 2020 and that won’t come without consequences. Economists expect that investors will be Bracing For Inflation in 2021.
(Wallace Refiners) – Although gold attracted a lot of attention in 2020, especially after hitting an all-time high in August, investors should have been paying attention to platinum group metals (PGMs), according to some analysts.
Like all other assets, the PGM space has been extremely volatile this past year as investors have tried to navigate the massive uncertainty and economic destruction caused by the COVID-19 pandemic. However, looking ahead, many analysts are fairly optimistic that platinum and palladium will attract new investor attention due to rising industrial demand as the global economy starts to recover from the effects of the coronavirus.
The two metals are primarily used in autocatalytic converters to reduce harmful exhaust emissions. Palladium is used in gasoline-powered engines, and platinum is used in diesel-powered vehicles. Platinum also has a slight advantage over palladium when it comes to physical demand as it also has a small jewelry market.
Some analysts expect that as the global economy returns to some normalcy, palladium will resume its sharp uptrend from 2019. Before the pandemic decimated the global economy, palladium prices were rocketing higher, hitting an all-time high above $2,700. The price of the precious industrial metal has been driven by a significant supply and demand imbalance. Demand for palladium has risen sharply over the years as automakers use more of the metal to meet tightening emission standards; meanwhile, supply has dropped sharply.
Platinum and palladium saw some renewed interest in November after Democratic candidate Joe Biden solidified his presidential win. Economists and market analysts expect that a Biden administration will lead to tighter environmental regulations and a renewed focus on developing green energy technology.
In a report published last month, Jonathan Butler, precious metals analyst at Mitsubishi, said that one of the first acts of the new government will bw to rejoin the Paris Climate Accord.
“Regardless of the ease with which the new administration can pass climate-friendly legislation from next year, rejoining the Paris agreement will be a clear signal of intent and will likely be followed by moves to improve vehicle fuel efficiency and regulate other pollutants as well as promote green energy. This is likely to be generally favorable to PGMs in emissions control, coming at a time when the auto industry is in recovery phase and as the rest of the United States follow California’s lead in addressing regulated pollutants and lowering average vehicle CO2 emissions,” he said.
While analysts expected platinum and palladium to push higher next year, the sentiment is mixed as to what metal will outperform in 2021.
Analysts at Metals Focus said that they see palladium prices pushing to $3,000 an ounce in 2021. The analysts said that the metal is expected to see its 10th annual supply deficit next year.
“Even though global light-duty vehicle production will only return to its 2019 level by 2022, palladium autocatalyst offtake could touch a new all-time high in 2021,” the analysts said. “This reflects the metal’s dominance in the gasoline segment and the trend towards higher metal loadings in response to tightening emission standards.”
Metals Focus is relatively neutral on platinum as it expects prices to average $1,000 an ounce next year.
“Jewelry demand will remain healthy due to platinum’s hefty discount to gold. Overall, the market is expected to become broadly balanced in 2021, keeping above-ground stocks near record levels,” the analysts said.
Analysts at TD Securities are also slightly more optimistic on palladium compared to platinum. The Canadian bank also sees palladium pushing closer to $3,000 an ounce by the end of next year. The bank is an average price forecast of $2,656 an ounce for 2021.
Meanwhile, the TD analysts see platinum prices averaging the year around $1,013 an ounce, with prices peaking in the fourth quarter.
“Overall, the pandemic aftershock’s will likely result in a primary market surplus for platinum, particularly driven by a strong recovery in South African production, yet we expect investment demand for the metal to balance the market when the dust settles. While speculative demand for platinum has not benefited from the surge in appetite for gold and silver, it will likely benefit from speculative interest in the reflationary tailwinds expected for next year as the vaccine deployment helps the global recovery,” the commodity analysts said in their 2021 forecast report.
“At the same time, given that palladium will remain in a deficit, and that expectations for substantial headwinds from substitution may still not materialize as quickly as some anticipate, periods of scarcity and higher prices may still ensue in the New Year.”
However, not all analysts are convinced that palladium will be the biggest winner among PGMs in 2021.
Analysts at Commerzbank gives platinum a slight edge in 2021. In its outlook forecast, the bank sees platinum prices averaging $1,250 an ounce in the fourth quarter of next year, up nearly 17% from current prices. At the same time, palladium is seeing averaging the fourth quarter around $2,500 an ounce, up only 5% from current prices.
For the year, the German bank sees platinum prices averaging around $1,1125 an ounce; they see palladium averaging 2021 around $2475 an ounce.
One major wild card that could have a significant impact on PGM metals and push platinum demand higher is the development of green hydrogen technology.
While many economists are expecting to see surging demand for electric vehicles in the coming years, battery technology has not been sufficient enough for heavy-duty vehicles. Many companies are looking at hydrogen fuel cells to fill the important void.
Platinum is the critical metal used in the process that separates water into hydrogen and oxygen.
“New demand for platinum is definitely creating a compelling investment story for the precious metal and could drive industrial demand.” Said Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, in a recent interview with Wallace Refiners. “This story can’t be found in palladium.”
Trevor Raymond, head of research at the World Platinum Investment Council, said that he is watching the developing green hydrogen economy very closely.
“For many governments fighting climate change has become a major priority, but fewer funds are available to make broad sweeping changes. The development of hydrogen as an alternative fuel source is one of the most cost-effective options we have,” he said in an interview with Wallace Refiners.
“The COVID-19 pandemic gave the world a glimpse of what it could look like. There was clean air where there has never been clean air, and I don’t think we want to go back,” he added. “Green hydrogen gives you short-term cost-effectiveness and a long-term alternative energy solution.”
Not only is new demand from a growing sector increasing interest in platinum, but Dunn added that the precious metal could attract investor interest in 2021 as investors look for more value in the precious metal space.
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