Palladium has had a turbulent 2021, from May’s all-time peak price of $3,019 to this week’s yearly low of $1,542.

During the first half of the year the price enjoyed a tailwind of Russian mine closures, increased loadings from the implementation of the China 6 emissions standards and pent-up consumer vehicle demand.

But since May the market has trended down significantly, and Metals Focus reckons this comes down to one thing – the global chip shortage.

Palladium price this year. Pic: Kitco


What do semiconductors have to do with palladium?

With lockdowns, a lack of travel and global supply chain disruptions, semiconductor production took a considerable hit.

Plus, the China-US trade war led to the US Department of Commerce imposing restrictions on China’s largest chip maker, SMIC, which in turn led to the US automotive market relying more heavily on Taiwan Semiconductor (TSMC) and Samsung – who were both already operating near full capacity.

In a domino effect, vehicle manufacturers thought there’d be lower demand for cars and cut their semiconductor supply contracts.

So, chip makers used their excess capacity in the tech sector and when car makers went to resume their output, they couldn’t get their hands on the same amount as before.

And with car manufacturing taking a hit, so did demand for palladium – which is used in autocatalysts.

Pic: Metals Focus


Vehicle production recovery could make a difference

But there’s a bright side, as car makers adjust to the chip shortage and get back to previous production levels, the palladium price should start to recover.

“It took the market time to interpret the full implications of half-manufactured cars, outside of factories, accumulating in car parks and what that meant for the palladium price,” Metals Focus said.

“[These] events have taken their toll on palladium demand during 2021, which saw the market swing from an expected deficit of 1Moz, in May 2021, to a meaningful surplus of 346koz.

“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.”

Price should hit $2,170 by late 2022

Metals Focus expects autocatalyst demand next year to recover by 8% year-on-year to 8.6Moz, but still fall short of the 8.8Moz consumed in 2019.

“While still likely to generate a surplus of 181koz in 2022, it will be much smaller than 2021’s surplus, with the market becoming much tighter towards the end of 2022 compared to the start of the year,” they said.

“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.”