Palladium propelled to record highs by Russia’s supply problems

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Palladium is used by car manufacturers in engine exhaust to reduce emissions.

From around $1,900 an ounce at the start of the year, palladium jumped to $3,440.76 on Monday, topping the 2021 record high of $3,017.18.

Chart: Palladium price, https://fingfx.thomsonreuters.com/gfx/ce/gdvzybbgopw/PALL%20RUSSIA.JPG Other resources produced in Russia, including oil, wheat, aluminum and nickel, have also increased due to sanctions imposed by countries like the United States. The United States and the European Union are urging many banks and shippers to stop handling Russian goods.

The closure of much of Europe to flights from Russia has also complicated the air transport of palladium.

“I expect prices to rise a lot further,” said Commerzbank analyst Daniel Briesemann. With the worsening conflict in Ukraine raising the risk of further sanctions, “the sky is the limit”, he added.

“There’s no lending, there’s no cash,” said a trader in London. “Everyone is sitting on metal and waiting.”

One-month forward rates, a proxy for rental rates, jumped to a two-year high of 3.75% from around zero in mid-February.

Chart: Palladium Forward Rates, https://fingfx.thomsonreuters.com/gfx/ce/znpnenngavl/PALL%20RUSSIA%20FORWARDS.JPG Palladium stocks are already depleted from years of undersupply caused by tightening regulations that have forced automakers to embed greater amounts of metal in gasoline engine exhaust pipes to neutralize emissions.

Rising prices put pressure on speculators to abandon bets on lower prices, which helps push prices higher. As of March 1, speculators held a net short position on the NYMEX exchange of 904 contracts representing 90,400 ounces.

Chart: Speculative palladium positioning, https://fingfx.thomsonreuters.com/gfx/ce/zdvxokkeepx/PALL%20RUSSIA%20SPECULATORS.JPG Most Russian palladium is mined in Siberia by Norilsk Nickel (Nornickel), which has no not been sanctioned.

Nornickel said it was “committed to doing our best to fulfill our obligations to our customers, partners, employees, Indigenous peoples of the North”.

Chart: Russia’s share of palladium production, https://fingfx.thomsonreuters.com/gfx/ce/gkvlgaaekpb/PALL%20RUSSIA%20SHARE.JPG Many analysts expect palladium prices to fall a once supply chains have adapted to the sanctions.

“Our base case assumes these (constrained supply) issues last no longer than a month, and alternative ways to ship the metal are found,” Citi analysts said, forecasting average prices. of $2,200 an ounce in the fourth quarter.

Citi projects that the market of about 10 million ounces per year will see deficits of 446,000 ounces this year and 176,000 ounces in 2023 and a surplus of 28,000 ounces in 2024.

In the longer term, demand for palladium is expected to fall as the market share of zero-emission electric vehicles increases. Chart: Palladium Deficits, https://fingfx.thomsonreuters.com/gfx/ce/zjvqkoolavx/PALL%20RUSSIA%20DEFICITS.JPG

(Reporting by Peter Hobson; editing by Pratima Desai and Alexander Smith)

By Peter Hobson