- Inflation is weighing on precious metals, with gold, silver, platinum, and palladium all experiencing monthly drops.
- S. Treasury yields, on the other hand, have soared in recent weeks.
- While gold and silver are largely investment commodities, palladium and platinum are key components in the automotive world.
The Automotive MMI (Monthly Metals Index) experienced a slight decline from May into June. The 30-day price change was roughly -9.55, a -6.52% drop. As with last month, multiple crises impacted the marketplace’s overall health. Among them are an ongoing microchip shortage and COVID-19 lockdowns. Below, we’ll discuss if and when we can expect normalization.
Inflation Causing Precious Metals to Become a Bit Less “Precious”
Gold, silver, platinum and palladium all experienced drops this month as U.S. Treasury yields soared by 3.39%. The news comes amid chronic inflation that seems to show no sign of dissipating. Indeed, as outlined in a Financial Times article, U.S. inflation clocked in at around 8.6% in May. This represents a 40-year high that could spell big trouble for the post-COVID economy.
Much of the market panic stemmed from a Wall Street Journal story predicting a 0.75 percentage point interest rate hike. In preparation for a surge in the dollar, precious metals declined across the board on June 13. In a report published in Reuters, Phillip Streible, the Chief Marketing Strategist for Blue Line Futures, said “There’s a massive correction going on, and when volatility gets that high, you can’t find safety or comfort anywhere.”
While gold and silver are largely investment commodities, palladium and platinum are key components in the automotive world. They are mostly used in catalytic converters for car exhausts, especially in newer, greener vehicles.
Last month, MetalMiner highlighted how newly imposed U.K. tariffs would affect Russia’s platinum and palladium markets. While the former is still climbing, palladium has long since erased those gains.
J.D Power Outlines Challenges in the Automotive Rebound
In an article from late May, J.D. Power reported that they expect new vehicle sales to drop significantly from 2021. Specifically, they projected May retail sales to reach just over 1 million units. When adjusted for the difference in selling days, that’s a 20.9% decrease from last May.
However, the company was quick to qualify its numbers, citing that demand far exceeds the available supply. Indeed, for the 12th month in a row, end-of-month retail inventories will be below one million vehicles. J.D. Power also highlighted record-breaking new-vehicle prices. The average transaction price is estimated at $44,832. This is helping to buttress the falling demand by boosting profits, even in the face of rising interest rates.
According to J.D.’s President of Data and Analytics, Thomas King, “for the balance of 2022, increased vehicle availability, higher interest rates and some cooling of used-vehicle values likely will lead to slower transaction price growth—but are unlikely to lead to declines.”
China’s Automotive Industry Sees a Light at the End of the Tunnel
Back in April, China’s auto association projected a 48% year-over-year drop in car sales. Of course, this was during the height of the COVID-19 lockdowns. Since then, Beijing and Shanghai have loosened their restrictions while simultaneously providing cash incentives to stimulate buying.
According to a recent WSJ article, the efforts are already producing results. For example, passenger car sales rose 30% in May, from 1.04 million vehicles to 1.35 million. Though this number is down about 17% from last year, it clearly shows that things are moving in the right direction.
And while COVID continues to cast a shadow over the country’s economic recovery, the Chinese government’s efforts have largely proved successful. For instance, Beijing reduced the vehicle purchase tax to the tune of nearly $9 billion.
Meanwhile, local governments added their own incentives to the mix in an effort to produce the best possible numbers. It’s too early to tell what the rest of 2022 has in store. However, China is making a concerted effort to show the world they’re back on track.
Semiconductor Shortage Still Affecting Automotive MMI
The semiconductor shortage might be one of the biggest contributing factors to the automotive industry’s ongoing woes. In fact, industry experts at TheDrive.com estimate that lack of microchips has already cut global supply by more than 2 million cars. This estimate received a shot in the arm last month when Toyota announced it would cut its global production plan by around 100,000 vehicles.
According to an article from Reuters, this drops the overall production plan from nearly one million to only 850,000 vehicles. The automaker cited COVID-19 as a compounding factor in the decision, but stated that the chip shortage is the primary holdup. As of the announcement, the company’s promise to deliver 9.7 million vehicles by March 2023 remains intact.