Palladium, a metal that is mostly used in catalytic converters, soared to its highest price in four months, with traders looking to secure supplies amid growing tensions between Ukraine and Russia, the top metal producer, as it amassed troops near the border.
The metal rose as much 8.3 percent on Wednesday, extending this year’s rally to almost 25 percent. Tensions between Russia and the West over Ukraine have heightened concerns that supplies could be disrupted, Heraeus Metals Germany head of trading Henrik Marx said.
Russia has said that it does not plan to invade Ukraine. Diplomatic efforts are also under way to avoid any potential conflict.
It is a sharp reversal in fortunes for palladium, which was the worst-performing major commodity last year. The effects of the semiconductor shortage on vehicle production soured its demand outlook, causing prices to plummet in the second half of the year.
On the over-the-counter market, the metal has sunk rapidly into backwardation — a market structure in which spot prices are higher than those for forwards — signaling tightening availability. Palladium trading is illiquid, which has historically caused rapid moves in its price.
Hedge funds trading New York palladium futures might also have been caught short by the recent move, with trading commitment data as of Tuesday last week showing short interest near its highest since 2018. Traders looking to close their positions would be forced to buy the metal at elevated prices.
“I think its ‘squeezey’ and has the capability to run on geopolitical headlines and risk, with no one willing to come in and provide the selling pressure to keep it capped,” MKS PAMP Group head of metals strategy Nicky Shiels said. “If it was really being squeezed, we would see a US$1,000 rise in days given the illiquidity.”
Russia produces about 40 percent of freshly mined palladium. In the event of a conflict involving Ukraine, there is no indication that there would be sanctions against metals exports. The US and EU have been weighing further sanctions on Russia’s largest banks, and are considering restricting the country’s ability to convert rubles for US dollars in the event of an invasion, which could affect exports.
Palladium traded up 6.8 percent at US$2,351.35 per ounce at 11:25am on Wednesday in New York.
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