Palladium surged to its highest level in four months, with traders scrambling for supplies amid rising tensions over Ukraine as leading metals producer Russia massed troops near the border.
The metal, which is primarily used in catalytic converters, rose as much as 8.3% on Wednesday. Extension of this year’s rally to almost 25%.
Tensions between Russia and the West over Ukraine have raised concerns that supplies could be disrupted, according to Henrik Marx, global head of trade at Heraeus Metals Germany GmbH and Co. Russia has said it has no plans to invade Ukraine. Diplomatic efforts are also made to avoid possible conflicts.
It’s a sharp reversal for palladium, which was the top worst-performing commodity in 2021. The impact of semiconductor shortages on auto production dampened demand prospects and caused prices to collapse in the second half of the year.
In the OTC market, the metal has quickly slipped into a lagging market structure where spot prices are higher than forwarding prices, indicating tighter availability.
Hedge funds trading the New York palladium futures may also have been caught short by the recent move, with commitment for traders data as of Jan. 18 — the most recent available — showing short interest near the highest since 2018. Those looking to close their positions would be forced to buy metal at elevated prices.
“I think it’s ‘squeezey’ and has the ability to work on geopolitical headlines and risk without anyone willing to step in and apply the selling pressure to keep it contained,” said Nicky Shiels, head of metals strategy at MKS PAMP. SA. If it were really squeezed, given the illiquidity, we would see a surge of $1,000 within days
Russia produces around 40% of the freshly mined palladium. In the event of a conflict involving Ukraine, there is no indication that there will be sanctions against metal exports. the country’s ability to convert rubles into dollars in the event of an invasion, which could affect exports. Palladium was up 6.8% at $2,351.35 an ounce at 11:25 a.m. New York.