War in Ukraine Throws Spotlight on Palladium Supply

Almost 40 percent of the palladium mined worldwide comes from Russia. The country could cease to be a supplier in the long term because of further sanctions due to the attack on Ukraine. In that case, supply bottlenecks would loom for the precious metal, which is used primarily in catalytic converters.

Palladium belongs to the platinum metals group and is closely related to the element platinum, after which it is named. In industry, it is used primarily for coating in autocatalysts, accounting for 85% of total palladium production, according to Statista Research Department. For comparison, gold is at eleven percent and silver at 55 percent. Other areas of application are dentistry with plating for implants and the jewelry industry, which requires it to produce white gold.

South Africa and Russia to Lead Global Palladium Production

As a raw material, palladium occurs both as a pure, so-called native metal and as a part of minerals. Since pure palladium deposits are already largely depleted, mining is concentrated on extraction with other metals such as nickel, lead, and copper. In 2021, the global mining volume of palladium amounted to approximately 200 metric tons, as stated by the U.S. Geological Survey. Most of this came from South Africa with 80 tons, closely followed by Russia with 74 tons. This corresponded to a share of 40% and 37%, respectively. Russia accounted for almost 43% of global palladium production just the year before, an estimated 93 tons in 2020.

Source: U.S. Geological Survey: Mineral Commodity Summaries 2022

Russia is Dominating in Palladium Exports

Russia exports large amounts of raw material. In 2020, the trade volume for the precious metal came to $6.4 billion. The second-largest exporter was Great Britain, with 5.4 billion US dollars. Besides Japan, China, and the USA, Germany is also among the most important buyers of Russian palladium. In 2020, the Russian Federation supplied the precious metal to the Federal Republic valued at around 600 million euros. This corresponded to just under one-fifth of total German palladium imports.

The sanctions in force, which the EU has imposed on Russia due to the Ukraine conflict, do not directly affect raw material supplies. However, in early April 2022, the London Platinum and Palladium Market (LPPM) suspended two state-owned Russian refiners from its “Good Delivery Lists,” revoking their accreditation. Platinum and palladium coming from the two refineries will no longer be accepted on the London/Zurich bullion market until further notice. This threatens a shortage of supply. In addition, there are other reasons that could jeopardize supplies. Due to airspace closures, there could be logistical problems, and the possibilities for payment transactions with Russia are severely restricted. In view of these unstable supply chains, companies that procure their raw materials from multiple sources or have high stocks are well-positioned.

Reserves Current Demand Covered by Reserves, New Areas of Application on the Horizon

Global reserves of palladium amount to 100,000 tons, most of which are in South Africa. In 2022, annual demand is expected to be 300 metric tons, with one-fifth covered by recycling, for example, automotive catalytic converters. This means that supplies to the industry are basically secure in the long term, as long as the current situation regarding raw material-producing countries remains unchanged.

Source: Statista.com: Global palladium demand volume 2019-2022

The demand for precious metals fell slightly in the two years of the pandemic. This was mainly due to the limping automotive industry, which suffered from lower demand and the chip crisis. Experts estimate, however, that demand will rise again. Besides the general recovery of the automotive industry, stricter emission standards with increasing demand for catalytic converters are drivers of this development. New areas of application are also emerging, for example, in energy transition. Due to its absorption capacity, the precious metal could play a key role in hydrogen storage.