Outlook for palladium bullish on supply constraints this year 

The outlook for palladium, one of the biggest gainers in the commodities basket after Russia’s decision ordering its troops into Ukraine, is bullish for this year despite the positive impact of geopolitical tensions.

It, however, pared its gains by the end of the day. But on Friday it maintained its uptrend, rising by 2.2 per cent to $2,455.62 an ounce. However, it is off the six-month high of $2,680 witnessed on Thursday.

Nevertheless, palladium is one of the major gainers in the commodity basket this year, up 34 per cent year-to-date. This is in contrast to its last year’s performance, when it was one of the commodities that performed badly.

Demand to rise post-Covid

According to Ines Ferre of Yahoo Finance, there has been a demand for palladium irrespective of the Russia-Ukraine stand-off. The Ukraine crisis only raised concerns that supply constraints could aggravate. 

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According to Johnson Matthey (JM) 2021 PGM (Platinum Group Metal) Market report, palladium demand will rise strongly, with a post-Covid rebound in vehicle production, and record use in the chemicals sector. This holds good for this year, say experts. 

In its outlook for palladium, Umicore precious metals management said palladium surged sharply on consumer concerns that supply might tighten as the Russia-Ukrain conflict escalates. 

But it pointed out that no commodity-related sanctions have been imposed, especially by the North Atlantic Treaty Organization (NATO) group, and all movements are based on speculation. Trading, too, remains tense due to the geopolitical risk.

Resistance, support

Umicore sees resistance for palladium, which has increased by over 200 per cent in the last five years, at $2,700 and support at $2,300. 

Bruce Ikemizu of ICBC Standard Bank sees supply constraint arising mainly out of the fact that the production of palladium, a by-product of nickel in Russia and platinum in Sout Africa, cannot be increased. 

“We cannot expect palladium supply and demand situation changes in near future. That is either we have sharply more supply or sharply lower demand,” he said in his outlook for the Singapore Bullion Market Association.

With automobiles running on fossil fuel still dominating the sector, Ikemizu does not expect the situation to change soon. Palladium prices will rule higher as long as the supply-demand situation does not change, he said. 

Russia’s hold on metal

Palladium is reacting to the developments in Russia since it is the largest miner of the precious metal. In particular, the platinum group metal is used as catalytic converter in the exhaust system of automotive vehicles. 

In 2021, Russia accounted for 40 per cent (2.6 million ounces) of the total production across the world. Last year, the metal performed badly since the automobiles sector faced shortage of semiconductor due to the Coronavirus pandemic. 

This, in turn, was seen as a factor affecting palladium demand. The metal’s prices had declined during the second half of 2021. 

With the number of hydrogen peroxide plants increasing in China, industrial demand for palladium, which is used as a catalyst in chemicals production, is also expected to increase. 

According to the PGM market report, palladium demand is likely to rise faster than supply with the market deficit estimated to have widened to 829,000 ounces in 2021. 

Norilsk’s woes

 Though the drop in demand last year could have helped increase palladium inventories, it did not happen following groundwater ingress at Norilsk Nickel’s Oktyabrsky mine that led to flooding. Besides, there were the mine-faced technical glitches resulting in production not meeting expectations.

Though the Europe’s emission norms 6d — equivalent to Bharat VI — will result in increased demand for palladium, the rise in the share of electric vehicles will soften it to some extent, the report said. 

Experts say despite risks for palladium like the Covid pandemic flaring up again, the metal will remain on course for a bullish run this year.