Industrial orientation… With the fifth sanction package, the European Union imposed additional bans on coal, wood and chemical products exported from Russia. In addition, European Union governments have frozen 30 billion euros in accounts belonging to oligarchs or banned persons directly linked to the Kremlin. Trade in newly refined Russian platinum and palladium has been suspended in London from Friday, and has recently been denied access to the metals' largest trading center on a list of increasing measures against Russia's interests due to the conflict in Ukraine.
Comparison of platinum and palladium prices… Source: Bloomberg
Platinum and palladium… Palladium prices have soared as much as 11%, and the move is feared to exacerbate the shortage of metals automakers use in their tailpipes to reduce emissions. As a commodity, palladium has attracted the attention of investors because it cannot be easily substituted for other metals. The largest use of palladium today is in catalytic converters. Palladium is also used in jewelry, dentistry, watchmaking, blood glucose test strips, airplane spark plugs, surgical instruments, and electrical contacts. Supply has lagged behind demand for almost a decade. Usage is increasing as governments, especially China, tighten regulations to reduce pollution from vehicles and force automakers to increase the amount of precious metals they consume.
Many gasoline powered vehicles also use palladium as a component. Emission control devices used by a number of Chinese automakers contain palladium, and history shows that palladium typically rises in value as demand for cars made in China increases. As the world shifts to electric cars, demand for palladium may gradually decline in the coming years, as palladium normally has no place in electric vehicles. However, it is used in hybrid vehicles.
Shares of countries in world platinum supply… Source: United States Geological Survey
Platinum is a chemical element, precious metal, and commodity that manufacturers use primarily for jewelry, electronics, and automobiles. Although almost identical in appearance, platinum is more valuable than gold. The high price of platinum can be attributed to its rarity and density, as precious metals are often priced by their weight. Platinum mineral supply continues to gradually recover from the operational disruptions related to Covid-19, but this supply may be curtailed due to the embargo due to the Russian crisis.
Embargo on Russian materials… Russia produces 40% of palladium and 12% of platinum supplied to the world. Industry sources in London say the sanctions are being implemented gradually and will increase pressure on manufacturers not to accept Russian platinum and palladium. Russian refineries JSC Krastsvetmet and Priosky Non-Ferrous Metals plant, which are on the LPPM list, announced that they will immediately suspend their membership. After this suspension, although the platinum and palladium trade that these refineries will produce after 08 April is prohibited in London, it is stated that it is appropriate for them to trade the products they produce while they are accredited.
A source close to Russia's Nornickel acknowledged that the LPPM decision would limit their ability to sell to banks, but said sales to manufacturers would not be affected and a large percentage of the business is sales to manufacturers. Refineries and miners in South Africa and North America are happy with these boycott decisions and think they can benefit from them. At this point, other manufacturers such as South Africa, Canada and the US can gain an advantage.
Shares of countries in world palladium supply… Source: United States Geological Survey
Conclusion? The war in Ukraine and disruptions caused by Western sanctions against Russia have pushed up the price of two precious metals, which are key to the global industry. Oil, natural gas, coal, uranium and nickel prices have skyrocketed recently as shipments from Russia, a commodity supplier, threaten to be interrupted. Besides the role of platinum in jewellery, Russia is a major supplier of both metals used in the automobile industry. Palladium in particular has been in high demand in recent years, thanks to globally tightened limits on harmful emissions from automobiles. The rise in palladium and platinum is the latest example of sharp movements in commodity markets fueled by the war in Europe.
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