Peter Hobson

LONDON (Reuters – Palladium prices increased 25% during the past week as investors and consumers feared that Russia could interfere with Russia’s top-producing Russia.

The world’s palladium supply is between 25% and 30%. It is extracted from engine exhausts in Siberia by Norilsk Nickel, also known as Nornickel.

British and U.S. politicians threaten sanctions against Russian people and companies if Russia invades its neighbor.

In 2018, the United States added Rusal to its sanctions list. Rusal is Nornickel’s biggest shareholder and represents around 6% global aluminum production. This pushed aluminium prices up by 35%.

Russia is also a major producer of natural resources, including oil and titanium.

Spot palladium shot up from $1,900 per ounce Jan. 18, to $2,449.50 Monday, before falling to about $2,370 on Monday.

(Graphic: Palladium rallies: https://fingfx.thomsonreuters.com/gfx/ce/zdvxoanrypx/PALL%20GRAPHIC%20PRICE.JPG)

A trader from London stated that consumers are stockpiling palladium. He also said that there had been a rise in the price of palladium borrowing. The premium, or backwardation, for immediate metal had increased over future delivery contracts.

The speculators abandoned their earlier bets of lower prices by buying back shares and pushing prices higher.

They had a net short position at NYMEX, representing 2082 contacts and 208,200 troy ounces. This was down from 3,400 contracts just a week before.

(Graphic: Palladium positioning: https://fingfx.thomsonreuters.com/gfx/ce/jnvwelxwwvw/PALL%20GRAPHIC%20POSITIONING.JPG)

However, there is better supply than in 2016 to 2020 when leasing rates sometimes went up 40x higher than the current level and palladium prices rose from about $500 an ounce down to approximately $3,000.

One-month forward rates are a proxy of lease rates and have increased to 0.75% from the highs in 2018/2020, which were around 30%.

(Graphic: Palladium forward rates: https://fingfx.thomsonreuters.com/gfx/ce/znpnejkzevl/PALL%20GRAPHIC%20FORWARD%20RATES.JPG)

Analysts expect that palladium will move into surplus and prices to drop as more automakers shift to platinum, which is cheaper, to remove exhaust fumes, and electric cars gain market share.

However, prices will rise in the near term if there is a rebound in auto production, which was low last year, according to Citi analyst Max Layton. He expects that the palladium market of 10 million ounces per year will be oversupplied with 446,000 ounces by 2022.

He said that Russia must not retaliate unless there is a palladium risk premium.

(Graphic: Palladium moving away from deficits: https://fingfx.thomsonreuters.com/gfx/ce/zgpomjkrkpd/PALL%20GRAPHIC%20BALANCE%20MF.JPG)