What is the Price Outlook for Palladium?
“The heightened anxiety that gripped all markets when Russia invaded Ukraine drove palladium prices to record high levels in early March. The sharp gains in palladium prices was justified given the large (40%) proportion of global palladium mine supply that comes from Russia.
By the start of April the market had given back the sharp gains that occurred during the initial throes of war in late February and early March. Until there is a resolution to the war between Russia and Ukraine, there will remain an ongoing concern about palladium supply disruptions out of Russia and consequently a war premium will remain on palladium prices. Based on history and the mutual dependence of Russia on PGM exports for foreign exchange earnings and western auto companies on Russian PGMs, the probability of such a disruption is quite low. However, the possibility of such a disruption cannot be fully ruled out. This is expected to provide a downside floor to palladium prices until there is a clear path toward settlement or stalemate in the Russian invasion of Ukraine.
Additional support to palladium also should come from the potential for supply disruptions out of South Africa when the PGM mining industry in that country starts its wage negotiations. South Africa accounts for around 35% of global palladium mine supply. Given the potential for disruptions to roughly 75% of global palladium mine supply, palladium prices are expected to remain at elevated levels over the next several months, with prices expected to remain above $2,000.
Concerns regarding supply are expected to be offset to some degree by the tightening in monetary policy as well of constraints on vehicle production, both of which are factors expected to weigh on palladium fabrication demand. That said, given the proportion of supply that is
at risk of disruption, supply is likely to outweigh concerns about demand in the near term. Palladium prices are expected to move between $2,000 and $2,200 in the near future.
Palladium fabrication demand continues to struggle because of the chip shortage that has reduced new vehicle production. The war between Russia and Ukraine has further disrupted the fragile recovery in microchip supply chains due to disruptions of shipments in other vehicle
components from Ukraine.
Tightening monetary policy and high oil prices are other factors that could negatively impact palladium fabrication demand from the auto sector. Both higher rates and higher oil prices reduce disposable income, which coupled with sky high auto prices could and already has started to push some potential buyers out of the market.
Additionally, high oil prices for an extended period of time could compel drivers to opt for smaller vehicles, reversing a trend that has been positive for palladium fabrication demand (because holding all other factors that influence auto demand constant larger engines equal higher platinum group metals loadings). High oil prices could also drive some consumers toward electric vehicles, which would also be negative for palladium fabrication demand.”