Palladium Moves Above The May 2021 Peak To A New All-Time High

Platinum group metals come from two countries, South Africa and Russia. In Russia, platinum, palladium, rhodium, and other PGMs occur in nickel ores. The Norilsk region of Siberia is one of the world’s leading palladium deposits. The war in Ukraine has caused palladium, crude oil, aluminum, coal, grain, and other commodities produced in Russia to experience explosive price moves. Sanctions and retaliatory measures could reduce worldwide supplies. 

The Aberdeen Physical Palladium ETF product (PALL) tracks the price action in the NYMEX palladium futures market. 

A record high in May 2021 and a correction

Before December 2017, NYMEX palladium futures never traded above $1035 per ounce, the 2001 all-time high. In 2018 it surpassed that price, and by May 2021, palladium nearly tripled from the 2001 peak. 

The chart dating back to the 1970s shows palladium’s rise to $2,985.40 in May 2021 when the precious industrial metal ran out of outside steam. Palladium futures fell to a low of $1,549.40 per ounce in December 2021, an over 48% decline. Palladium came under intense pressure as the demand dropped because of the semiconductor shortage that caused automobile production to slow.

Russia lights a bullish fuse in 2022

Russia is the world’s leading palladium-producing country. 

Source: Statista

As the chart shows, Russia produced 91 metric tons of palladium in 2020 compared to 70 tons of output in South Africa. Canada and the US were a distant third and fourth with 20 and 14 metric tons of production, respectively. 

Palladium had been rising from the December 2021 low, and the rising tensions between the US and NATO, and the Russians added to the upward momentum. Russia’s invasion of Ukraine propelled the metal well above the May 2021 record high on March 7, 2021.

The chart illustrates March NYMEX palladium futures moved to a new all-time high of $3380.50 on March 7 before pulling back in volatile trading. 

Shortages could push prices to new record levels

After Russia invaded Ukraine, the US and European countries slapped Russia with a host of financial sanctions. The Russian government had prepared for the move with a strategic deal with “no limits” with China and moved its reserves away from dollars and euros into gold, and perhaps, Chinese bonds. 

Meanwhile, sanctions weigh on the Russian economy, sending stocks and the ruble’s value lower. Many western companies are abandoning Russian investments and joint ventures in protest over the invasion of Ukraine. A European and US ban on importing Russian oil and gas is likely. 

Russia will retaliate with embargos and bans. As a leading producer of crude oil, natural gas, coal wheat, fertilizers, aluminum, and palladium, the energy and agricultural commodities and metals could experience severe shortages if Russia refuses to supply the raw materials it produces. Moreover, the impact of the invasion will reduce capital flows into Russia and may cause the labor force to decline, leading to lower output. 

As of March 7, all of the commodities produced in Russia had experienced explosive gains, and palladium is no exception. 

Palladium is a green metal

Palladium is a green metal as its density and resistance to heat make it a critical component in catalytic converters for gasoline-powered engines for cars and buses. Palladium is also required for jewelry, dentistry, watchmaking, blood sugar test strips, aircraft spark plugs, surgical instruments, and electrical contacts. 

Palladium is around thirty times rarer than gold, making it an even more precious metal. 

As the world addresses climate change, the industrial demand for palladium has risen dramatically. However, palladium remains a rare precious metal with only 210 tons of worldwide production in 2020. Russia accounted for nearly half the output. In early 2016, palladium reached a bottom at below $470 per ounce. On March 7, the price was over six times higher. 

PALL is an alternative to the physical and futures market 

Bull markets in commodities can take prices to unthinkable levels when shortages occur. The potential for almost half of annual output to disappear from the market could push the price far above the May 2021 all-time high over the coming weeks and months. 

The most direct route for a risk position in the palladium market is via the physical bars and coins available from dealers worldwide. The NYMEX division of the CME offers a palladium futures contract with a delivery mechanism. 

For those looking to participate in the palladium market without holding physical metal or venturing into the futures arena, the Aberdeen Physical Palladium ETF product (PALL) provides an alternative. 

At $271.59 per share, PALL had over $530.5 million in assets under management. The ETF trades an average of 84,815 shares each day and charges a 0.60% management fee. 

Nearby palladium futures rose from $1549.40 in December 2021 to $3380.50 on March 7, an 118.2% increase.

The chart shows that PALL moved from $143.06 to $281.50 per share or 96.8% over the same period. One of the drawbacks of the PALL ETF is it only trades during hours when the US stock market is open. Palladium futures trade around the clock during the week. The high in palladium occurred at 3:30 EST, six hours before the US stock market and PALL ETF product began trading on March 7. PALL misses significant moves that occur when the stock market is closed as it did not on March 7. 

Palladium moved to a new all-time high, and the sky could be the limit for the price as Russian supplies may disappear from the market. However, a settlement that decreases the risks by ending the war could cause the price to correct sharply after the recent surge. Expect lots of volatility in the palladium market over the coming days and weeks.