Following news that the United States is seeking G7 countries to jointly sanction Russia's metal exports, the price of palladium has surged.
On Thursday, October 24th, Eastern Time, the NYMEX December palladium futures contract, which fell 1.5% on Wednesday, made a significant rebound. It rose to $1,173 at midday during Wall Street trading, an approximate increase of 10.2% in a single day. This marked a new high for the main contract since December 28th of last year, and brought the cumulative increase of palladium since the beginning of this month to around 16%.
The surge in palladium prices on Thursday was driven by a report from Bloomberg. The report, citing informed sources, stated that the United States is hoping other G7 countries will consider sanctions on palladium and titanium produced in Russia to further impact Russia's economy. Officials from the Biden administration proposed this possibility at the G Deputy Finance Ministers meeting in Washington on Tuesday.
Palladium is a key component in the manufacturing of computer chips and automotive catalytic converters, while titanium is used in a variety of fields from aircraft to medical implants. The Russian company MMC Norilsk Nickel PJSC (Nornickel) is the world's leading palladium producer. According to sources, the company's palladium production accounts for approximately 40% of the global total, mainly exported to China, with some still going to the United States because the U.S. government has not yet imposed an import ban on palladium.
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The aforementioned report indicated that the main difficulty for the U.S. in seeking sanctions on palladium and titanium is that Europe has been uninterested in such sanctions in the past. Even G7 members Germany, France, and Italy would require the support of the other 24 EU member states to implement such sanctions.
Since the beginning of last year, the price of palladium has accumulated a decrease of about 37%, falling nearly two-thirds from its peak in March 2022, with miners attributing this to a global economic downturn and manufacturers reducing inventory.
The significant increase in palladium on Thursday has allowed commodity investors to see the potential for further upward movement in palladium.
Although the idea of U.S. sanctions may be difficult to realize, Daniel Ghali, a senior commodity strategist at TD Securities, commented that the risk of sanctions has reignited buying in palladium, with trend-following commodity trading advisors (CTAs) increasing their bullish positions in palladium, stating, "Fear is the trade."
Dan Smith, head of research at Amalgamated Metal Trading, said that the possibility of Russian palladium being banned from entering the market may lead to a tightening of market supply, because "South Africa and other major producing countries will not be able to fill this gap."
Before the news of the U.S. seeking sanctions broke, Goldman Sachs commodity trader Gerald Tan pointed out in a report released on Thursday that palladium has seen short covering since the latter half of this summer, but it remains in a heavily shorted state.At the beginning of this year, extreme trends observed by Goldman Sachs indicated that palladium is highly sensitive to headline news.
Tan stated that, in terms of liquidity, Goldman Sachs' trading desk has noticed investors regaining interest in palladium. The firm is monitoring the one-year high of $1,225 for palladium, assessing whether dealers' shorting of some gamma and rhodium as a palladium substitute is a non-speculative reaction stemming from genuine supply tightness.
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