WPIC: U.S. trade tariffs may lead to a 1% and 4% decrease in demand for platinum and palladium, respectively.

The World Platinum Investment Council (WPIC) issued a statement stating that in the short term, tariffs will have the largest impact on platinum group metals used in the industrial sector, particularly in the automotive industry. Canada and Mexico have become the focus of attention for the Trump administration. However, the North American automotive industry is highly interconnected. Mexico and Canada together account for around 20% of US finished vehicle imports and 50% of parts supply, so it is difficult to imagine that tariffs will not harm automotive production and related demand for platinum group metals, at least in the short term. Assuming the worst-case scenario (based solely on sales data, excluding parts supply), platinum demand in the North American automotive industry will decrease by 97,000 ounces, and palladium demand will decrease by 362,000 ounces, representing 1% and 4% of global total demand, respectively. Although the automotive industry's impact on palladium is estimated to be more significant than platinum, the US's domestic supply of platinum group metals tends to lean towards palladium (see Figure 7), which may affect the relative lease rates of platinum and palladium. Trump's tariff threats are wide-ranging and are likely to be used as leverage to influence other policy areas. It remains unclear how, when, or if tariffs will be implemented, but starting from February 1st, rates could gradually increase from 10% to 100%, with further incremental increases over time. Key partners Mexico and Canada seem to face a 25% tariff. It is currently unclear whether strategic critical minerals like platinum group metals will be included in the tariff scope, or if the policy will focus on reshoring industrial production back to the US. Market expectations of precious metals being included in the tariff scope in January led to a sharp increase in platinum lease rates, reflecting expectations of an effective tariff exceeding 11%. This trend also affected EFP (Exchange for Physical) rates, leading to nearly 90,000 ounces of platinum flowing into the New York Mercantile Exchange (NYMEX) (see Figure 4), providing a buffer for US platinum demand. In recent days, lease rates have eased, indicating a relaxation of market concerns about tariffs (Trump's actions have been slower than expected) or the market believing that NYMEX inventories are sufficient as a buffer. In contrast, the impact on palladium is much smaller, suggesting that market concerns about US palladium supply are relatively muted. Figure 1: Due to tariff concerns, platinum's implied lease rates spiked but have eased in recent days. Figure 2: The interconnected nature of the North American automotive industry implies that tariffs could harm demand for platinum group metals. Trump's statements on tariffs have raised concerns about US platinum supply, leading to funds flowing into NYMEX warehouses. However, if demand in the automotive sector faces downside risks, palladium seems more vulnerable than platinum. The attractiveness of platinum as an investment asset stems from the following reasons: WPIC research indicates that the platinum market entered a period of continuous supply shortages from 2023 onwards, with these shortages expected to deplete above-ground platinum stocks completely by 2028. Platinum supply continues to face challenges, whether in primary mining or recycling supply. Platinum demand benefits from its applications in diversified end markets. Platinum is a critical mineral in the global energy transition, playing a crucial role in the hydrogen economy. Platinum prices remain historically undervalued, far below gold prices. Figure 3: Platinum lease rates spiked due to Trump's tariff threats but have eased in recent days. The impact on palladium is smaller, indicating less market concern about short-term palladium supply. Figure 4: The rise in lease rates boosted EFP rates, attracting platinum flows into the exchange, increasing NYMEX inventories by nearly 90,000 ounces. This phenomenon helps alleviate some market concerns about tight platinum supply. Figure 5: The US automotive industry is highly linked to Mexico and Canada. Comprehensive tariffs could severely damage demand in the US automotive sector in the short term. Figure 6: While market pricing shows more significant concerns about platinum supply, the downside risk to demand for platinum group metals in the automotive industry leans more towards palladium. Figure 7: On the other hand, platinum has a relatively small share in domestic supply in the US. Figure 8: Market tightening has not translated into an increase in the dollar price of platinum group metals.