The price of palladium has risen to over $1,600 per ounce as the ongoing supply shortage forces the price of the precious metal ever higher. News from Russia this week has suggested that the country – the main source of palladium – will limit its exports further, causing a sharp increase in price.
Russian newspaper Kommersant reported last week that the Trade and Industry department were debating whether to ban exports of palladium scrap and tailings (waste ore from mines), though beyond speculation there has been no reasoning as to why the Russian government would do this. Russia is the leading producer of palladium – sourced as a by-product of nickel mining – and its output has a significant impact on global prices.
We reported in February that palladium had passed $1,400 per ounce, and since then the metal has risen by $200 – a 16.6% increase in value in just one month. The Reuters news agency reports that palladium has enjoyed seven consecutive sessions of market gains so far, but with palladium presently at $1,609 per ounce, having been as high as $1,621, today could be the end of that run.
As the price chart below shows, palladium’s short supply has seen a price rise of more than $1,000 in the past three years – an increase in value of approximately 173.38%.
Palladium is used in catalytic converters in petrol/gasoline vehicles. Despite the global economic slowdown and the worldwide decline in car sales, demand for palladium still vastly outstrips supply – hence the high price. Another driving factor is emission targets, with many nations (most notably China) keen to tighten their regulations and better combat pollution. An increased requirement of palladium in converters to combat vehicle emissions means an increase in demand that counters the losses from a slowing automotive market.
Tighter emission standards to be adopted in China - so-called China VI – is likely to promote the use of #Palladium and #Rhodium gasoline autocatalysis. An extra gram per vehicle as required by legislation equals 700,000oz to 1,000,000oz of #Palladium.— Vector Equilibrium (@Mercedarians) March 11, 2019
China is also in the process of reducing interest rates and offering financial incentives to certain areas of the economy in order to act as a stimulus, and this adds further potential for palladium demand.
Sister metal platinum is also on the up, hitting a two week high price of $855.33 per ounce. Due to their shared usage in autocatalysts, platinum may be being considered as a cheaper replacement for palladium. If palladium, the more effective metal, becomes too pricey for vehicle makers then they will be forced to make the switch to platinum, but so far companies have resisted this notion.
German metal refiners Heraeus recently published their market analysis on palladium and platinum, warning of the potential for a similar crash to 2001, when global demand for palladium fell sharply due to high prices, causing a depreciation of 60%. Chinese car sales are far higher now than then, but uncertainties such as the US/China trade war and Eurozone difficulties could impact this.