The Russia-Ukraine crisis and other Key factors affecting the palladium price outlook

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In this article we take a look at some of the key supply and demand considerations affecting the palladium price and its outlook, including the most recent influence of the Russia-Ukraine crisis.

Source: Bloomberg

 

Shares Palladium Norilsk Nickel Automotive industry Norilsk Nickel

 

Why has the palladium price been rising since 2016?

Stricter emission controls in the automotive sector saw increased demand for palladium. Palladium is primarily used in catalytic converters for petrol/gas vehicles to help reduce carbon emissions.

Why did the palladium price fall in 2021?

In 2021, supply chain disruptions as the economy rebounded from the Covid-19 pandemic, saw a shortage of semiconductors/microchips used in the motor vehicle industry. The shortage has limited production and demand for the precious metal.

How long will the semiconductor shortage last?

The semiconductor shortage affecting the motor industry remains, although is expected to ease from about the second half of 2022. This is according to Fitch ratings agency and a number of carmakers including General Motors, Ford and Hyundai. Some of the reasons for this include improving capacity meeting a slower demand increase as the strength of the economic rebound (from the Covid-19 pandemic) starts to fade.

How is the Russia-Ukraine crisis affecting palladium?

Norilsk Nickel, Russia’s primary palladium producer accounted for roughly 40% of the global palladium supply in 2021. Palladium prices remain sensitive to the Russia-Ukraine crisis from the threat of disruption to production and exports. Recently imposed sanctions on Russia have targeted Society for Worldwide Interbank Financial Telecommunication (SWIFT) international payments as well as banks. This can indirectly inhibit trade if exemptions are not given for these products. So essentially the short-term rise in palladium we are seeing speaks to supply concerns of the precious metal.

Which countries import the most palladium?

The US, Germany, Hong Kong, China and Japan are amongst the largest importers of palladium. This demand for palladium is supported by the large proportion of motor vehicles produced by these regions.

Which countries (other than Russia) produce the most palladium?

South Africa is the second largest palladium producer in the world and accounts for around four times more output than Canada, the third largest producer thereof.

Which are the top palladium-producing companies in the world?

While Norilsk Nickel remains the largest palladium producer in the world, other top miners of the commodity, as well as other platinum group metals (PGMs) are: Sibanye Stillwater, Anglo American Platinum and Impala Platinum.

Palladium – technical outlook

Source: IG charts

 

The price of palladium (June contract) has broken firmly above the 2400 resistance level. The upside move suggests the recent high at 2710 to be the initial resistance target from the move. A break above this level (confirmed with a close above) could see 2875, possibly 3015 as further upside resistance targets.

A pullback towards 2400 might still be considered buyable for trend followers, while a move below 2215 would consider the bullish momentum move to have failed. Traders who are long could consider using the dotted red trend line as a trailing stop loss consideration for the trade.

In summary

• Tighter emission controls for the automotive sector have helped gains in palladium since 2016
• 2021 saw a decline in the precious metal as supply chain disruptions impacted demand
• Russia is the largest producer of palladium through Norilsk Nickel
• Escalating sanctions could affect exports of the commodity
• Regions that account for palladium demand form the greater share of global car manufacturing
• South Africa is the second largest producer of palladium
• Sibanye Stillwater (after Norilsk Nickel) is the second largest palladium producer in the world
• A short-term breakout suggests 2710 to be the next upside resistance target for palladium

Shaun Murison | Senior Market Analyst, Johannesburg
02 March 2022