The shortage of palladium has been prevalent for several years due to rising vehicle sales and tightening of carbon dioxide emission regulations leading to the continuous uptrend in prices since the second half of last decade. However, palladium prices slumped in H2 2021 due to semiconductor shortage issue, which led to a sharp decline in the global automotive production. As per market reports, the semiconductor shortage led to a loss of >1MOZ of palladium demand in 2021.
In Q1 2022, the prices surged due to two major factors: the COVID-19 pandemic and the ongoing Russia-Ukraine conflict. The supply chain disruptions caused by these factors led to a surge in prices of palladium in early 2022.After a brief surge in Q1 2022, the palladium prices again started declining in late Q2 2022 and are anticipated to decline in Q3 2022 as well due to an impending economic slowdown and the persistent semiconductor shortage issue. However, a likely fall in the South African supplies in H2 2022 may limit the price fall.
These supply disruptions are causing knock-on effects across a number of different industries. This includes:
- Automotive – The automotive industry is facing supply chain disruptions in the case of palladium due to the closure of airspace, as well as automotive manufacturers suspending operations in Russia. Although the disruptions have eased, the current situation is likely to lead to low inventories for both new and used cars, keeping car prices high in 2022
- Healthcare – As palladium is used to make silver dental fillings, these supply disruptions have caused dental fees to surge. This rising price trend for dental treatment is expected to continue for the next six to eight months, as palladium prices are likely to keep fluctuating after falling in Q2 2022
- Oil and gas – Many oil and gas companies have closed business operations in Russia due to the ongoing conflict. As palladium is required in the hydrogen separation process, the current situation may push oil and gas businesses to look for alternatives to palladium to meet their desired hydrogen output targets
However, according to Rashi Singh, Associate Vice President, Procurement and Supply Chain at The Smart Cube, there are solutions to the supply disruptions currently being experienced in the palladium market.
“Disruptions in the supply chain of palladium and lower platinum are likely to promote palladium’s substitution with platinum in the medium to long term. According to the World Platinum Investment Council (WPIC), 340,000 ounces of palladium are expected to be replaced in 2022 by platinum – a 70 per cent Year-over-Year (Y-o-Y) increase.
“What’s more, palladium mining companies are increasing their production capacities by launching new projects or increasing drilling activities, while Russian mining companies are seeking alternate routes to supply palladium globally.
“Companies acquiring palladium, such as automotive manufacturers, are likely to overcome supply issues in the market through alternative sourcing routes. For example, in April 2022, Anglo American Platinum – a South African mining company – received enquiries from manufacturers and carmakers seeking palladium because of Western sanctions on Russia.
“All of the aforementioned solutions require businesses to actively evaluate alternative suppliers and improve inventory planning to ensure business continuity.”