Palladium prices have soared to their highest level in four months, driven by the situation in Russia and Ukraine, amid fears that the escalation of the conflict between Russia and Ukraine will lead to a shortage of palladium as Russia is the world's largest producer of palladium.
Palladium rose 8.4 per cent on Wednesday, expanding its cumulative gain so far this year to nearly 25 per cent. Precious metal refiner Heraeus Metals Germany GmbH & Co. Henrik Marx, head of global trading, pointed out that tensions between Russia and the West over Ukraine have heightened concerns about possible supply disruptions.
Russia accounts for about 40% of the world's newly mined palladium production, and although there is no sign that the West will impose sanctions on palladium exports, the United States and the European Union have been considering further sanctions against Russia's largest banks. and consider restricting Russia from converting rubles into dollars when war breaks out, which could affect palladium exports.
In the over-the-counter market, palladium has fallen into a spot premium (the market structure in which spot prices are much higher than forward prices), indicating a tightening of spot supply. Palladium trading is known for its lack of liquidity, and there have been several precedents of sharp price fluctuations in history.
Palladium surged to a record high above the $3000 mark in May last year, but that rally reversed in the middle of the year, plunging more than 20 per cent during the year, making palladium the worst-performing commodity in 2021.
Most palladium is used in catalytic converters to reduce pollution in gasoline engines, and the price of palladium has been rising from mid-2018 until the middle of last year because of supply constraints and urgent demand in car production.
However, the global shortage of chips has limited consumption. In addition, as technology advances, catalytic converter manufacturers have become more inclined to use cheaper platinum in recent years. Together, these factors contributed to Palladium's Waterloo in 2021.
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