Palladium's crazy trend after the escalation of the conflict between Russia and Ukraine may not be over. But the astonishing rise in palladium this year looks fragile amid signs that palladium exports will remain unchanged and that demand from carmakers could be affected.
About 40% of Russia's palladium is mined locally. Palladium prices surged to record highs last week on concerns about the country's bank restrictions and fears that the aviation ban would make it difficult for it to supply customers around the world.
There are signs that Russian exports will not be hit as hard as initially thought, so palladium prices have since fallen, but they are still up more than 40 per cent so far this year. Vladimir Potanin, president of MMC Norilsk Nickel PJSC, the world's largest nickel producer, said that although its routes with Europe and the United States had been suspended, the company could reschedule cargo through other routes.
Palladium may also be the victim of accelerating inflation and slowing global economic growth caused by the Ukrainian-Russian war. Carmakers consume about 85% of the metal's supply in making pollution-reducing catalytic converters for gasoline engines and are likely to accelerate the shift to cheaper platinum.
Although automakers prefer to use palladium as a catalytic converter to curb pollution from gasoline vehicles, it is increasingly being replaced by the cheaper sister metal platinum. Palladium surged to record levels on Monday, almost three times the price of platinum. The World Platinum Investment Committee (WPIC) expects 340000 ounces of palladium to be replaced by 2022, an increase of 70 per cent over last year.
"prices will fluctuate a lot in the first half of this year," said Nicky Shiels, head of metals strategy at MKS PAMP. " "but fears of a recession are rising as demand is expected to be suppressed in the second half of the year, when price risks turn sharply downwards."
Although palladium has not been affected by the sanctions, Russia's growing isolation is still affecting the supply of palladium. Potanin told the media over the weekend that some customers are considering canceling their contracts with Norilsk Nickel and that investment plans may also be delayed.
Precious Metals Insights Ltd. Philip Klapwijk, managing director in Hong Kong, believes that whether, Norilsk Nickel can continue to deliver palladium to the spot market in the form of long-term contracts will be the key to determining the price trend of the metal. He said palladium prices could rise sharply if the Russian government instructed the company to limit supply.
Palladium hit an intraday high of $3442.47 a troy ounce on March 7, but has since fallen back to nearly $2700. Suki Cooper, an analyst at Standard Chartered Bank, said she expects the average price of palladium to be $2763 in 2022 and will fall to $2275 next year.
The risk of recession is looming. Metals Focus Ltd said it is increasingly likely that car production in 2022 may be lower than expected. The World Platinum Investment Council said last week that the war could lead to a sharp increase in demand for platinum. The association says alternative supply has reached 340000 ounces this year, an increase of 70 per cent over 2021.
Nikos Kavalis, managing director of Metals Focus, said: "in the near future, the news related to Ukraine will certainly lead to strong support, or even a sharp rise." "but our basic view is that metal flows will continue in one way or another, and this bull market will dissipate later this year."
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