With prices ranging from $150 to almost $3000 per ounce, palladium has become a new star within the commodities sector. Palladium, a byproduct of nickel and platinum, has gained a lot of popularity within industrial raw material industries. But what has triggered this rise in demand? Today's world cares about the climate and palladium is a safer and cleaner alternative to many other metals. Hence, many industries have started using it in the production of products, and in particular in catalytic converters.
Palladium supplies have always been limited. However, supplies have been further limited by a flood at the Norilsk palladium mines in late February, which has caused two of the major mining sites to be closed temporarily. Norilsk is the world's leading palladium producer, however, the full impact of the floods on annual palladium production is still unknown. This shortage of palladium along with the rising demand for the metal has caused the price to soar. Russia is the largest producer of palladium worldwide, and Russia and South Africa combined account for more than 85% of world palladium production.
Floods at the Norilsk mines are not the only reason for the increase in palladium prices. Prices were already driven up by production shortages caused by the pandemic including the lockdowns and staffing shortages. Production (at least in the short-term) has been decreasing. The corresponding increase in demand has intensified the price increase. Norilsk's CEO stated that constant efforts were being made to contain the situation and palladium production should be stabilized soon. Nevertheless, the short term situation has continued to deteriorate, and no improvement has been seen in palladium production yet. In the future palladium prices may soar even further due to uncertainty regarding higher palladium production costs.
China is one of the worlds largest palladium consumers. They are likely to see the most damage from the high palladium costs. The metal is used extensively in the automobile industry and China is one of the largest producers of engines and cars. Constant increases in the spot price of palladium will eventually be passed from the producers to the consumers, which could cause an increase in the cost of products containing palladium. Another major user of palladium is the petroleum industry in Europe. Hybrid car engines use palladium instead of platinum.
The consistent decline in palladium supply that has been prevalent over the last decade is still continuing. Due to the ever growing shortage of palladium, the price is now reaching all-time highs. Palladium is quite rare - about 30 times rarer than gold. This and its environmentally friendly characteristics make it popular in a wide range of industries for the production of goods. The burden of cost on the producers of goods that use palladium as a raw material will be ultimately be passed on to the consumer leading to inflation in the prices of goods containing palladium.