The ongoing global semiconductor shortage disrupting the auto industry may potentially ease in 2022, though the platinum group metals complex may be guided by semiconductor availability.
The enduring semi-conductor shortage has resulted in world auto production figures remaining subdued in 2021's final quarter.
As a result, this continues to seriously affect platinum group metals (PGMs) demand in all key auto-producing centers — around 40-80% of PGM end-use — according to UK brokerage Liberum analysts led by head of commodities strategy Tom Price.
Heraeus Precious Metals, one of the world's largest platinum group metals refiners, said the semiconductor shortage is estimated to hit global light-vehicle production by 9.6 million units in 2021, with Asia experiencing the most disruption (36%), followed by Europe (32%) and North America (27%).
The estimated 9.6 million units amount to a drop of around 1.4 million oz of PGMs in 2021, with platinum demand decreasing 230,000 oz, palladium down 1.1 million oz, and rhodium dropping 161,000 oz, Heraeus said.
Semiconductors are an essential component of electronic devices, military systems, transportation, and clean energy, and they are made of pure elements, such as silicon or germanium, or compounds such as gallium arsenide or cadmium selenide.
Around 85% of annual palladium demand comes from the global automotive industry, which uses the metals in catalytic converters to control polluting emissions.
Shortages to continue
Nevertheless, based on downstream industry indications, Liberum forecasts a recovery in chip supply in Q1 2022.
"Such an event is likely to prompt a lift in the buying rate of all auto raw materials, lifting demand/prices for the PGM complex," the UK brokerage said.
Still, ANZ analysts said chip shortages may well continue into H1 2022, resulting in little hope for a near-term revival of auto catalyst demand.
With a view of easing semiconductor shortages in H2 2022, ANZ said it expects auto catalyst demand will increase by 339,000 oz for platinum and 449,000 oz for palladium in 2022.
TD Securities analysts said that due to the current state of the semiconductor industry, problems were likely to remain for now and in turn may keep the chip shortage lingering into 2022.
"[However], we have started to see signs that the shortages are being alleviated, particularly as the holiday season comes to a close shortly," TD Securities analysts said.
The Canadian investment bank said as demand eases in appliances, computers, industrial equipment, smartphones, and TVs after holiday shopping, more supply is likely to find its way to other sectors which may offer the auto sector some reprieve.
"Furthermore, North American automakers are stepping in to align with chipmakers, coming to agreements to develop and manufacture chips to reduce supply chain uncertainty, while European automakers are also sounding more optimistic that the worst of the shortage is behind us," TD Securities analysts said.
Supply chain
According to ED&F Man Capital Markets analyst Edward Meir, the semiconductor shortage is likely to persevere at least through 2022, with the COVID-19 omicron/delta variants potentially further escalating supply chain disruptions.
"As such, automotive palladium demand from China could continue to disappoint. We just don't know yet. In the US, latest auto sales in November will be down for a fourth month in a row and should come in at 1.1 million cars and trucks, off 15% versus November 2020 levels," Meir said.
The Chinese auto market is the largest gasoline market in the world, with gasoline engines accounting for around 90% of China's light vehicle sales.
Due to the negative impact on auto demand for palladium as well as reduction in supply from Russia, the market is likely to have moved from a deficit to a surplus, Meir said.
"As Russian supply normalizes in 2022, the market will remain in a surplus, especially if the semiconductor shortage continues to constrain auto production and palladium consumption in turn," Meir said.
Russian Nornickel — the world's largest producer of palladium and high-grade nickel, and a major producer of platinum and copper — suspended its Oktyabrsky and Taimyrsky underground mines in February.
No quick fix
Heraeus said closing the chip supply shortfall appears to be unlikely before 2023, with no quick fix to the chip shortage for the auto sector.
"While the effects of the natural disasters that knocked out production earlier in 2021 have largely been recovered from, there is a longer-term need for investment in capacity build," Heraeus said.
"Plans are in place to build more European chip factories, especially in Germany and France. Intel has announced it will spend €80 billion [$90 billion] to expand its semiconductor manufacturing capacity in Europe, but such new plants will take several years to be ready for production, leaving the region exposed in the meantime," the company said.
In terms of both vehicles and PGMs, some pent-up demand is expected in 2024 and 2025. However, this scenario assumes that by this point chip production capacity is no longer constrained and that auto output has returned to normal levels, Heraeus said.