Welcome to Kitco News’ 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) – 2021 has been a dismal year for the entire precious metals sector, and the disappointment has been acutely felt within platinum group metals (PGMs) as palladium has been the worst performer.
Palladium is looking to end the year down more than 19% as prices trade below $2,000 an ounce. According to analysts, PGMs struggled most of the year as COVID-19 supply issues surrounding microchips significantly curtailed vehicle production.
Looking ahead to 2022, optimism is growing among analysts that these two precious metals can maintain a steady course as the global supply chain continues to recover. Commodity analysts at TD Securities are particularly bullish on PGMs and see the current price as a buying opportunity.
“We look to buy the dips in both platinum and palladium. With industrial demand headwinds mounting and the chip shortage still constraining auto demand, the early months of the year could still provide dips toward $1000/oz and $2000/oz for platinum and palladium, respectively. We feel prices near these levels represent ideal entry points to benefit from a coming outsized recovery in auto demand,” the analysts said in a 2022 outlook report.
TD sees palladium averaging 2022 around $2,400 an ounce; at the same time, the Canadian bank sees platinum averaging the year around $1,188 an ounce.
Although considered precious metals, platinum and palladium are used almost exclusively as industrial metals and are critical components in autocatalytic converters, used to reduce emissions from diesel and gasoline-powered engines.
While the chip shortage is at risk of becoming entrenched in the auto sector, some analysts have said that PGM metals demand will be more resilient as automakers increase the amount of metal used in catalytic converters to meet tightening environmental standards.
Many market analysts also expected that the worst supply issues have been resolved, even if auto sales remain down from 2019 levels.
“We expect vehicle production to recover in 2022 as most models have the chip shortage largely factored in now, with the majority assuming transitional resolutions from the middle of next year. Short of the situation worsening or becoming prolonged, this should help limit the downside for the palladium price,” said analysts at Metals Focus.
The U.K. precious metals research firm expects palladium autocatalyst demand to rise about 8% to 8.6 million ounces, down slightly from 8.8 million ounces in 2019.
“Within this context, we anticipate a gradual recovery in the palladium price from its current lows, especially towards the latter part of 2022, to average $2,170 for the full year,” Metals Focus said in a recent report.
Platinum, palladium supply to grow in 2022
Of course, demand is only half of the equation for the PGM market; prices are also influenced by supply. Palladium is particularly sensitive as its current supply deficits have been cut due to lower demand and increased mine production.
Carsten Fritsch, precious metals analyst at Commerzbank, noted that Nornickel, the world’s largest palladium producer, reduced its deficit estimate to only 200,000-300,000 ounces compared to its previous estimated deficit of 400,000-500,000 ounces.
Commerzbank sees palladium prices averaging around $2,00 an ounce next year.
Meanwhile, Metals Focus said that palladium could see a surplus for the first time in at least ten years.
The global platinum supply is also expected to grow in 2022 as mine production increases. In November, the World Platinum Investment Council forecasted a surplus of 637,000 ounces for 2022.
“The key to the market balance in the coming year is likely to be investment demand. Stronger investment demand would reduce the supply surplus next year but hardly eliminate it completely. For this to happen, investment demand would have to rise to almost 1 million ounces, which does not seem very realistic from today’s perspective,” said Fritsch.
Commerzbank looks for platinum prices to average the year around $1,050 an ounce.
The growth of the hydrogen economy
The platinum and palladium markets are expected to normalize in 2022 after two years of significant supply and demand disruptions; however, according to some analysts, the evolving green energy transition is an unknown bullish factor for platinum in particular.
The ability to use hydrogen to generate power is garnering a lot of attention as nations worldwide look to create more green energy. Platinum is a critical component used to septate water into hydrogen and oxygen molecules. The hydrogen is then used to power fuel cells.
While the technology is still in its infancy, analysts at Bank of America said that it would have a significant impact on platinum demand within the next ten years.
“While a range of technologies will be critical, several countries have published hydrogen strategies, suggesting that the production, storage and use of the gas will be fostered going forward. Indeed, electrolysis with renewable power, along with hydrogen usage by industry and consumers, is key in the national strategies,” the analysts said. “Linked to that, electrolysis could add over 300Koz annually to platinum demand. Further downstream, fuel cell electric vehicles will likely run on green hydrogen and they could add just under 400Koz to annual platinum consumption out to 2030.”
Bank of America added that the growing hydrogen economy could potentially push platinum into a deficit by the end of 2022.
The bank sees platinum prices average next year around $1,338 an ounce. It is significantly more bullish on platinum compared to palladium. Analysts see palladium prices averaging 2022 $2,118 an ounce.
By 2023, Bank of America sees platinum once again trading at a premium to palladium.