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JOHANNESBURG: There is likely to be a deficit of platinum and palladium this year after a COVID-19 lockdown in South Africa, the world's biggest platinum producer, forced mines to shut, analysts at Bank of America Merrill Lynch predicted last month.

While demand for platinum group metals, which are mainly used in cars and jewellery, has also plummeted due to the global pandemic, the analysts said they expect demand to rebound, while mine production will take months to build back up.

In South Africa, which produces 78% of the world's platinum and 36% of palladium according to BAML, a strict lockdown to stop the spread of COVID-19 forced most mines to shut from March 27.

Though the government allowed mines to restart at up to 50% capacity from April 16, BAML analysts predict it will take six months for production to ramp back up to pre-pandemic levels.

"Our base line assumption is that output runs at 50% in May and June, before rising to capacity by December," they wrote in a note dated May 7 but distributed to media on May 8.

"Putting it all together, we anticipate that both platinum and palladium will be in deficit this year. As such, we remain bullish the white metals into year-end."

South Africa's biggest platinum miners have cut production guidance for 2020 and announced production losses due to the lockdown.

Anglo American Platinum said quarterly production decreased by 7%, while Impala Platinum reported a 6% drop.

Analysts are split on how the demand-supply dynamics will play out: Citi on Wednesday predicted platinum group metals prices could fall 15-20% due to a "rising surplus".

Platinum prices are down 20% since the start of the year, while palladium prices have fallen 3.6%.

Copyright Reuters, 2020