(Mike Maharrey, Money Metals Exchange) While everybody was watching the gold and silver bulls run, the price of palladium shot up by about 8 percent on Thursday (Oct 24).
In fact, palladium is up by around 27 percent since earlier this month, having spiked from $922 an ounce to over $1,195 today.
What is going on with this rather obscure but important metal?
What Is Palladium?
Palladium is a rare silver-white metal in the family of platinum group metals (PGMs). It was discovered by English chemist William Hyde Wollaston in 1802.
Palladium is a key component in catalytic converters for gasoline-powered vehicles. The auto sector accounts for about 85 percent of palladium offtake.
Palladium’s conductivity and durability also make it ideal for small electronic components. It is an important part of multilayer ceramic capacitors (MLCCs) found in devices such as cell phones, laptops, and televisions.
Like its cousin platinum, palladium is also used to make jewelry.
Palladium is about 30 times rarer than gold. Globally, mines produce about 200 tons of platinum each year. This compares to gold output of around 3,000 tons annually.
Most global platinum production is a byproduct of nickel and platinum mining.
Palladium reserves are concentrated in a few key areas. Russia and South Africa produce most of the world’s palladium, with Russia contributing around 38 percent of the total. When factoring in recycling, Russia accounts for about a quarter of the world’s palladium supply.
Russia’s MMC Norilsk Nickel PJSC ranks as the world’s biggest palladium producer.
Palladium Supply Threat
In the spring of 2022, the price of palladium soared to over $3,000 an ounce. This was due to fears of supply disruptions after Russia invaded Ukraine. At the time demand was also growing due to tightening global emission regulations and an economic boom in China.
As fears over supply chain disruptions eased and demand in the automobile industry sagged, the price of palladium slowly tumbled. It has been hovering in the $900 to $1,000 an ounce range for the past year.
So, why did the price of palladium suddenly spike?
According to a Bloomberg report, the U.S. is pushing G-7 members to sanction Russian palladium.
“The Biden administration floated the potential restrictions at a meeting of G-7 finance officials in Washington this week as it mulls fresh ways to squeeze President Vladimir Putin’s war efforts.”
A commodity analyst with TD Securities told Bloomberg the threat of supply disruptions has “reignited buying activity,” and “fear is the trade.”
The Biden administration may find convincing other G-7 members to go along with palladium sanctions a tough sell. It also remains unclear how much U.S. and G-7 sanctions would impact the global market. According to the Bloomberg report, Russia sells most of its palladium to China.
Nevertheless, a researcher with Amalgamated Metal Trading told Bloomberg that sanctions would likely tighten the market because “South Africa and the other major producers won’t be able to fill the gap.”
Palladium is already in a supply squeeze. Demand has outstripped supply for three straight years, and the projection is for a 358,000-ounce market deficit in 2024. A commodity strategist at Saxo Bank said above-ground stocks of palladium are nearly depleted, adding that the sanction threat may “further rattle a long-held spec short while raising supply anxiety in a market that remains in a deficit.”
Palladium Demand Boost?
There has also been market speculation that demand for palladium could increase as China looks for ways to stimulate its economy. When China embarked on a significant stimulus policy back in 2019, the price of palladium soared.
Even before the news of possible Russian sanctions, the palladium market was already pricing in the possibility of higher Chinese demand.
China accounts for 30 to 35 percent of global palladium demand. China is one of the world’s largest automobile markets. Even with the global shift toward EVs, gasoline-powered vehicles still dominate the Chinese market.
There was also news out of Russia that added a little bullish momentum to the palladium market. Russia reportedly plans to allocate 51.5 billion rubles to buy precious metals, including palladium, to hold in its state fund.
What’s Next for Palladium?
Tight supply and increasing demand are a recipe for rising prices. However, it seems unlikely we’ll see a return to $3,000 palladium in the near future due to limiting factors including a shift toward platinum in catalytic converter production. Nevertheless, there does seem to be a bullish picture developing in the palladium market and there may be momentum for further price gains.
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
