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By: Rhona O'Connell, Head of Market Analysis
Swiss trade numbers reflect an improvement in platinum’s fortunes and palladium’s struggles
Monitoring Swiss traded flows between the two major platinum and palladium suppliers, South Africa and Russia respectively, and the major consumers – Germany, the United States and Hong Kong+China gives us hard evidence that backs up anecdotal comment. We also monitor trade with the United Kingdom, although this tells us less as it is effectively flow between two terminal markets.
The October numbers were released last week while I was on leave, but they are still relevant.
What they are telling us is as follows: -
Platinum: in a better position than palladium, which is in part suffering the backlash of earlier heavy imports into China. Platinum, though, is also still seeing what looks like offloading from the auto sector in both the United States and Germany plus the dreadful downdraughts of the semiconductor chip dislocations
Platinum: Swiss net trade with key counterparties (kg)
In the short term, Switzerland was a net importer of just 90kg from the key counterparties, after a nine-month average of 856 kg of the first nine months of the year. There have been a couple of months this year (June and September) when imports from South Africa were very high, suggesting that they may have had to have recourse to the terminal market in the face of reluctant demand, as indeed may have also been the case in the middle of 2020. Hong Kong and China are taking metal in but for now they are the only bright spots. The auto sector is continuing to live from hand to mouth and production rates are still being cut in the auto sector. The World Platinum Investment Council currently believes that there was a 3% decline in platinum demand in the auto sector in the third quarter as auto production cuts kicked in. It looks as if the outflows of metal from NYMEX vaults, as disinvestment flows would have sent metal back to the banks, who would then have been unwinding the relevant futures hedge positions, went into London rather than Zurich – while physical metal flowed into China on the back of speculative buying interests and some of this may have come out of NYMEX.
In the slightly longer term the picture is better; Switzerland’s net imports from the key counterparties over the first ten months of this year have averaged 991kg. This compares with 2,226kg per month in January-October 2020, 1,151kg per month in the equivalent period of 2019 and just 685kg in the same space in 2018.
Palladium, unsurprisingly, has been suffering more than platinum due to the state of the auto sector, which normally absorbs roughly 80% of global industrial demand (against ~45% for platinum); and given that the semiconductor crisis is likely to persist through the first half of next year, these inflows into Switzerland may well increase.
Palladium: Swiss net trade with key counterparties (kg)
The primary source is of course the United States, which exported a net 18t of palladium into Swiss hands in 2020 at the height of the pandemic, although in fairness this was actually lower than in 2019, which saw exports of 20t, suggesting that inventories were already being lightened anyway. Over those two years the monthly average was therefore 1,567 kg; in 2021 to end-October the average was actually quite a lot lower at 280kg, as some metal was actually taken back in March to May.
China has been a sporadic importer from Switzerland, although the primary flows have been into Hong Kong, which posted a monthly average of 419kg in 2019 as the purchasing started ahead of tighter emission control regulations, then 746kg in 2020 and 233kg in 2021 to end-October. Taking these two together gives a combined net import since the start of 2019 of 21t of palladium.
These numbers, though relatively dramatic, are nothing like the amount of metal that came in from the States over the period. From 2019-October 2021, the States exported 40t of palladium into Switzerland, while Hong Kong took 16t and China, 5t. Relocation of some of the terminal market allocations also saw the United Kingdom take in 13t over the time. So if we were to strip out the UK numbers then Switzerland would have been a net importer of 23t of palladium from Russia, south Africa, Germany, the USA and Hong Kong plus China. Including the UK brings this net number down to 10t.
Prepare for more to come.
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