Microchip Shortage will Continue Affecting Prices of Two Metals

Microchip shortages and the subsequent troubles in the auto industry are making a significant impact on prices of platinum and palladium. Analysts’ forecasts for these two metals are polar opposite: while palladium will remain in deficit, the platinum market will experience a stronger revival in global supply.

Analysts view the problem with microchip deficit as lingering. The shortage limits the production of vehicles in the second quarter of the year to about 80% of the levels reached in the fourth quarter of 2020. Analysts predict that the shortage will fully disappear only by the middle of the next year.

In the best case scenario outlined by analysts, the production of vehicles will remain at the current level in the second quarter of this year, while the microchip deficit will ease by the end of 2021. In the worst case scenario, the deficit aggravates and improves only in the fourth quarter of this year, getting solved only by the end of 2022.  

Whichever road the microchip drama takes, the palladium market will remain in a deficit for several years. The platinum market is expected to see the surplus of global supply. Because the platinum market will experience a surplus this year, the metal’s prices are foreseen to drop from $1,200 per ounce to $900 per ounce by the end of 2021. i

In analysts’ opinion, the palladium market can develop according to any of the outlined scenarios, since the share of demand derived from the auto industry is much larger there. And yet, they think that, whatever the development, the market deficit will stay close to its current level. Therefore, analysts predict that the price of palladium will reach $3,000 per ounce by the end of the year, moving slightly above the current price at around $2,800 per ounce.