According to a Reuters article, the demand for precious materials like palladium and platinum is likely to decrease if President Donald Trump’s proposed tariffs on US auto imports result in a decline in vehicle sales.
The potential decline in demand can be attributed to automakers reducing their production in the event that car sales were negatively affected by tariffs. This would reduce the need for precious metals.
Tariffs may increase the price of imported vehicles, which could make them less appealing to American buyers and lead to a possible decrease in sales.
The decrease in automotive sales may have an impact on the whole supply chain. This could include the demand for metals such as platinum and palladium.
Analysts closely monitor the situation as any decline in demand could have a significant impact on the prices of these precious metals and companies who mine and produce them.
Trump said at the start of this month that auto tariffs may be implemented by April 2.
Import prices will increase
This would result in an increase in the price of cars imported into the US and a decrease in the demand for vehicles exported to the US.
Automotive industry consumers of palladium and platinum are a significant market for precious metals. Any disruption to this sector can have significant implications on the precious metals markets.
It is expected that the impact will extend to other platinum group metals, such as palladium and rhodium. The exhaust systems for gas, hybrid, diesel and other vehicles use these metals.
Zain Vawda is a market analyst with MarketPulse, by OANDA. He said tariffs are known to increase inflation, and interest rates, and this could lead to slowed economic growth, and weakened demand for palladium and platinum.
It is still unclear what impact the proposed tariffs will have on the automobile industry or the demand for precious materials.
Demand Risks
Analysts warn that a tariff could lead to a drop in demand, which would have an adverse impact on precious metals.
Automotive industry is a major player in demand for palladium and platinum. It accounts for 40% of global palladium consumption, and an impressive 80% for global platinum.
The demand for these metals is driven mainly by their use in catalytic convertors. These are important components of vehicle exhaust systems that reduce harmful emissions.
Platinum is used both in petrol and diesel powered engines. Palladium in particular is a metal that’s primarily found in vehicles with gasoline engines.
In the automotive industry, the increasing stringency in emission controls and regulations around the world as well as the adoption of more strict emission control technology has fueled demand.
Vawda predicts that if tariffs on US car imports are implemented, global palladium and platinum demand this year will drop by around 4% (364 000 ounces).
Imports are a major factor in the economy
Imports from Canada and Mexico, in particular, are important for the US automobile industry.
Barclays believes that Mexico contributes up to 40% and Canada over 20% of all the parts used in US cars.
Volkswagen, the German automobile giant, manufactures about 75% of all its North American cars in Mexico.
Wilma Swats, Director of PGM research at Metals Focus, said that PGM consumption could drop by up to 150,000 ounces in this year.
The reduction is dependent on tariffs causing a drop in US car sales by up to 1 million units. 90% of this reduction will be attributed to internal combustion engines and hybrid cars.
The spot platinum and palladium prices fell by over 2% the following day, February 19, after Trump’s announcement of his plans to impose auto tariffs.
Since then, they have dropped by approximately 5% each.
The US proposed tariffs could threaten demand for palladium and platinum. This post may change as new information becomes available
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