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• Platinum market has been very patchy year to date, clouding the underlying fundamental picture somewhat. • Upside to palladium demand from the auto industry is increasingly limited; platinum to benefit from substitution for a while. • Hydrogen economy relies on platinum in electrolysis and FCEVs; not palladium. Platinum to switch into sustained deficits. United Arab Emirates, October 06, 2020: Similar to other raw materials, Covid-19 has had a profound impacted on supply and demand of the platinum group metals (PGMs), dislocations that often clouded the fundamental picture. Of course, beyond reducing underlying demand in the manufacturing sector over the lockdowns, PGM markets were also affected by a range of idiosyncratic issues often linked to logistics. Changing tack slightly, Switzerland and China built inventories, with purchases of the Asian country in particular feeding into higher lease rates and sponge premia; platinum trading volumes on Shanghai Gold Exchange also hit record highs earlier this year. Meanwhile, investment demand especially for platinum has held up, reflected in a pick-up of assets under management at physically backed ETFs of late. Finally, supply losses at South Africa's mines, but also in scrap, have been supportive to markets of late. Demand headwinds to palladium from car industry Against the unusual and patchy fundamental backdrop in recent months, we note persistent concerns over the impact an electrification of vehicles will have on platinum and palladium demand. To that point, sales of cars with a combustion engine (i.e. both ICEs and HEVs) may have peaked. We believe car sales, the share of diesel vehicles, emission standards, thrifting and substitution will all determine the strength of PGM consumption going forward. Substitution in particular is worth following and one reason, we factor in outright declines in palladium demand towards 2023, as platinum stands to benefit. Overall, with about 85% of palladium demand driven by auto catalysts, compared to 35% for platinum, we see a risk that the 1500% rally in palladium will slowly draw to a close. Hydrogen economy to boost platinum Against this backdrop, it is also worth keeping in mind that the hydrogen economy, i.e. electrolysis and fuel cell vehicles, will materially boost platinum demand, although it will not help palladium purchases. Indeed, under our most bullish scenarios, platinum offtake could increase by 2.2Moz and 4Moz from electrolysis and fuel cell electric vehicles respectively by 2030, compared to a market size of around 8Moz at present. Using the most bearish/ cautious scenarios, we expect a balanced platinum market in 2021/22 and sustained deficits from 2023. At the same time, palladium shortfalls are set to decline gradually, before the market flips into surplus from 2023.
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