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Palladium: Stronger for Longer

by Unlisted Blog   ·  April 15, 2022   ·  

Palladium: Stronger for Longer

by Unlisted Blog   ·  April 15, 2022   ·  

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Palladium has to be one of the clear winners of the 2022 commodity rally. 

Analysts recently raised their price forecast for Q1 2022 to $2,800/oz due to strong demand from the auto sector, which consumes 85 percent of the world’s palladium, and to $2,700/oz by the end of Q2 2022 due to strong demand from the auto sector. 

Russia mines around 40% of the world’s palladium, so any continuous stock worries are most certainly justified as long as the conflict in Ukraine proceeds.

The metal, which is commonly used in catalytic converters, recently skyrocketed to record highs as a result of Russia’s invasion of Ukraine, and it is now trading 30% higher than it was at the start of the year.

However, those in the industry believe that things are just getting started, and that this precious metal has the potential to shine even brighter. According to Impala Platinum, the world’s biggest maker of platinum bunch metals, the worldwide palladium rally could keep going for a long time given the ongoing business sector elements.

The following are the reasons why palladium will remain strong for a longer period of time:

Supply Uncertainty

Palladium has so far been exempt from government sanctions; however, given the current state of affairs, it remains to be seen whether the precious metal will be free of supply disruptions. 

Last week, the London Platinum and Palladium Market suspended the main two authorize Russian purifiers whose metal can be exchanged the London and Zurich markets.

This jolted the palladium (and platinum) markets, sending palladium futures up 8.3 percent to around $2,407/ounce, and the metal has since continued to rise. 

The suspension of Russian refiners raises market participants’ concerns that the palladium market will be severely undersupplied in the future.

Palladium is a basic part of exhaust systems, which diminish poisonous substances in internal combustion vehicle exhaust vapor. It is also used in hybrid vehicles, which are considered a bridge between gas-powered vehicles and pure electric vehicles.

Soaring Demand

The metal’s significant role in reducing carbon emissions and meeting our climate goals is the primary reason for palladium’s soaring demand. 

Furthermore, palladium is said to be the key to unlocking hydrogen-powered fuel cell vehicles, which some believe are the future of transportation because hydrogen fuel cells have a much higher energy density than current lithium-ions. 

Palladium, which has been in a market shortfall for as long as decade, is presently a hot ware in the growing car area because of this guarantee.

There was even a trend in 2021 of thieves stealing car mufflers and selling the metals back into the recycling market.

Russia’s Nornickel, the world’s largest producer, expects another 300,000 oz deficit in 2022, with the auto market returning to normal in 2023. Palladium sourcing will continue to be a major challenge for automakers in the future.

Dormant Mine Supply

The palladium shortage is being exacerbated by a lack of mine investment, which has resulted in a slowing of supply. 

According to Nico Muller, chief executive officer of Impala Platinum, the lack of “major investment in new supply” may help support the palladium rally in the coming years. 

A essential driver of higher palladium costs stays the underlying deficiency, in which request proceeds to surpass joined essential and optional supplies incredibly.

According to Johnson Matthey’s May 2021 PGM market report, global palladium supply continues to lag behind demand.

Jurisdiction Risks

Almost 80% of the world’s palladium is mined in South Africa and Russia, the two of which are politically unpredictable.

Few other countries are regarded as major contributors to global supply, owing to a lack of mine investment in recent years. The only notable names among low-risk jurisdictions are Canada and the United States. 

Following the recent events in Europe, palladium buyers are increasingly looking to South Africa for supplies, as many have cut ties with Russia. However, given Russia’s significant contribution to supply, any significant shift would add further pressure to the palladium market, keeping prices elevated.

Inflation Concerns

Another advantage that palladium has is the inflationary concerns that are reverberating throughout the global economy. 

Palladium is for the most part utilized for modern purposes, it is as yet viewed as a valuable metal and, similar to gold and silver, can go about as a fence against expansion.

Because palladium is only mined in a few places on the planet and is already in high demand by the auto industry, the metal may provide a higher return than gold, which has few to no industrial applications. After the global financial crisis, an OECD study found that palladium could even outperform gold in terms of hedging performance.

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