As Russia’s war in Ukraine continues, investors are starting to wonder what global trade without Russia will look like.
In particular, investors are wondering what will happen in commodities markets where Russia is often a crucial player. Palladium and platinum are two common queries.
Russia is the most important producer of platinum and palladium. Moscow mining giant Nornickel is the world’s biggest producer of both elements. Last year, Russia produced 40% of global palladium, and 10% of global platinum. (South Africa is the largest producer of platinum, with Russia coming second).
Palladium Mine Production Worldwide by Country | 2010 - 2020
Source: US Geological Survey, 2021
Their chemical properties – high melting points, inert – mean platinum and palladium are extensively used in industry. Their biggest use is in car catalysts, where they scrub pollutants from car exhaust fumes. But other uses include electrolysers, where platinum catalysts help break down water into hydrogen and oxygen. Dentistry, where palladium is used to make crown and bridge restorations. And semiconductors, thanks to platinum’s high electrical conductivity.
Not only are they widely used, platinum and palladium are difficult to replace or substitute. While rhodium can be used in car catalysts in place of palladium, rhodium is less commonly mined, and making the substitution requires carmakers to alter their manufacturing processes. Aside from rhodium, there are no clear substitutes for car catalysts.
Given Russia’s central role in their production, ejecting Russia from global trade could impact supply and ultimately prices—especially of palladium. The repercussions could be felt throughout the value chain, effecting everything from the car industry to glass making to medical equipment.
Palladium Year to Date Price Change
Source: Bloomberg, data from 1 January – 3 March 2022
More problematically, sanctions could create opportunities for countries that do not comply – possibly China, which abstained on the UN Security Council vote – to scoop Russian palladium and platinum up on a discount.
It is too early to know the full extent of sanctions NATO countries will apply to Russian companies, and how they may effect Russian platinum and palladium exports long term. And too early to know which countries will fully comply with whatever the final list of sanctions turns out to be. (India, for example, ignored US sanctions on Iran for years, creating windfall profits for Indian companies). But markets are reacting nonetheless.
Palladium has rallied strongly this year and is up 35% in Aussie dollars as of 28 February. This constitutes a sharp reversal of fortune from 2021, where it was among the poorest-performing commodities. Platinum has posted a more modest 12% rally year to date, again in Aussie dollars.
Should the war drag on or escalate, supply and prices could be further impacted.
For those wishing to trade platinum or palladium, ETFS provides two ETFs, which are 100% physically backed by platinum and palladium. They are the only products of their kind in Australia.