Palladium Prices Surge on Threat of New Anti-Russian Sanctions

The price of palladium on the world market has surged to $1,170 per troy ounce for the first time in ten months, driven by concerns over potential new sanctions on Russian exports. On October 24, the price jumped by more than 10% in a single day, outpacing other precious metals and reflecting market fears about disruptions in supply from Russia, the world's largest producer of palladium. Despite the sharp rise, experts believe that the risk of sanctions being imposed remains low, and they expect the price to settle back to around $1,100 per ounce.

According to data from Investing.com, palladium reached $1,170.4 per ounce on Thursday, the highest level since December 28, 2023, representing a 10.4% increase from Wednesday's closing price. This was the largest single-day increase in palladium prices since December 14, 2023, when they surged by more than 11% to $1,102 per ounce.

Other precious metals also saw price increases, though these were less significant and short-lived. Gold rose by 0.9% during the trading day, hitting $2,743.3 per ounce before closing at $2,728.2. Silver peaked at $34.3 per ounce before falling back to $33.3, losing 1% overall. Platinum prices rose by 2.8% to reach $1,044.4 per ounce before retreating to $1,023 per ounce.

The recent surge in palladium prices has been primarily driven by reports of a potential proposal by the United States to G7 allies, suggesting sanctions on Russian palladium exports. Russia accounts for 44% of the global palladium supply, making it the largest supplier. Other key producers include South Africa, which holds 38% of the market share, and North America, with 12%. Such a significant reduction in supply would have substantial implications for the global market.

Nornickel, Russia's largest palladium producer, is responsible for a significant portion of the global output. In the first half of this year, Nornickel produced 1.48 million ounces of palladium, representing more than 15% of the estimated global consumption for 2024, which Johnson Matthey has estimated at 9.73 million ounces. Given this context, a supply disruption could severely impact the market. However, according to Dmitry Puchkarev, a stock market expert at BKS Investment World, the G7 countries are unlikely to impose such restrictions, considering the ramifications for the global supply chain.

“If sanctions on the metal are not implemented, we expect prices to stabilize at an average of $1,000 per ounce next year,” said Dmitry Smolin, senior analyst at investment bank Sinara. Even if sanctions were imposed, experts believe that palladium prices would rise but not double, given the automotive industry's increasing focus on electric vehicles, which do not use palladium, and the potential substitution with other metals. “Excessively high prices for palladium could push automakers to use other precious metals such as platinum and rhodium. Therefore, we do not anticipate a significant price increase for palladium in the medium term,” said Alexander Potavin, an analyst at FG ‘Finam.’

European consumers of palladium would be among the most affected by any restrictions, as they would need to find alternatives to Russian supplies. “Russian mining businesses may resort to tactics similar to those used by oil companies, employing bypass supply schemes. While this would reduce their profit margins, it could help maintain external markets for Russian palladium,” Potavin added. He also noted that Asian countries, which already receive half of Nornickel's palladium exports, would likely be the biggest beneficiaries.

The rise in palladium prices has also affected the Russian market, with the nearest palladium futures contract increasing by nearly 8% on the Moscow Exchange. Meanwhile, trading in the precious metals segment saw a slight decline in prices by 0.3% to 3,480 rubles per gram, following a 7.5% increase the previous day. The rising price of palladium had a positive effect on Nornickel's share value, which rose by 1% to 105.28 rubles, even as the MOEX index fell by 0.6%. “For Nornickel, the imposition of such sanctions would be a double-edged sword. On the one hand, it would limit market access, but on the other, reduced Russian supply could lead to higher prices, potentially offsetting the negative impact,” said Smolin.