By Ashitha Shivaprasad and Shivansh Tiwary
(Reuters) - Demand for industrial precious metals platinum and palladium will likely fall if tariffs proposed by President Donald Trump on U.S. auto imports dampen vehicle sales, analysts said.
Earlier this month, Trump said levies on automobiles would be coming as soon as April 2. This would mean imports into the country would become more expensive, while exporters to the United States could see demand for their cars slide.
The ripple effects are expected to spread to platinum, palladium and rhodium, known collectively as platinum group metals, which are used in vehicle exhaust systems for gas, diesel and hybrid vehicles.
Tariffs typically fuel inflation and keep interest rates higher, potentially slowing economic growth, which Zain Vawda, market analyst at MarketPulse by OANDA, said would weaken demand for platinum and palladium.
The auto sector accounts for nearly 40% of platinum demand and 80% of palladium offtake globally.
Vawda expects global platinum demand to decline 1% or around 102,000 ounces this year and palladium by 4% or 364,000 ounces if the tariffs on U.S. auto imports are imposed.
The U.S. auto industry is heavily dependent on imported parts and fully assembled vehicles, particularly from Canada and Mexico.
Barclays estimates Mexico provides up to 40% of the parts in U.S. vehicles, Canada provides more than 20% and that German auto giant Volkswagen produces about three-quarters of its North American fleet in Mexico.
Meanwhile, Wilma Swarts, Director of PGM Research at Metals Focus, said PGM demand could drop about 150,000 ounces this year if tariffs reduce U.S. vehicle sales by up to one million units and if 90% of that drop is from internal combustion engine and hybrid vehicles.
"American consumers would probably hesitate to buy a tariff hit vehicle because they wouldn’t like the higher price," said David Whiston, equity strategist – U.S. autos at Morningstar.
Spot platinum and spot palladium each fell more than 2% on February 19, a day after Trump announced his auto tariff plans. Since then, they have dropped about 5% and 7%, respectively. [GOL/]
(Reporting by Ashitha Shivaprasad in Bengaluru and Shivansh Tiwary in Bengaluru, Editing by Pratima Desai and Kirsten Donovan)
