Russia-Ukraine Conflict Increases Cost of Palladium

The cost of palladium, an essential component of catalyst converters, increased as a consequence of the Russia-Ukraine conflict. Russia is the world's leading supplier of palladium with a market share of 40 percent. However, no major supply chain disruptions are expected due to the growing popularity of Electric Vehicles (EV).

Once news broke that Russian troops had entered Ukraine, palladium prices jumped to a seven-month high while gold hit an 18-month high as investors looked to buy safe-haven assets, as  reported by MBN. Palladium hit a historical price record following a 40 percent increase. In the first week of Jan. 2022, palladium prices oscillated between US$1,850 and US$1,937 per ounce. Now, Palladium is valued at about US$3,017 per ounce.

Palladium prices increased due to the West’s economic sanctions on Russia and because the metal is mined only in a few countries, such as South Africa, Canada and the US. According to North American Palladium, almost 80 percent of the palladium production is consumed by the automotive industry for catalyst converters.

The skyrocketing price of palladium will not affect the actual scarcity of microprocessors in Mexico because those are manufactured in Taiwan, said Alberto Bustamante, Director, National Autoparts Industry. Russia is not part of the supply chain, he added. The US Department of Commerce warned that the shortage of chips and semiconductors, components of electronic devices, will continue until at least the 2H2022, mainly affecting the automotive sector. Some companies, such as Intel, expect it to last until 2023, as reported by MBN.

The supply chain might also be protected by the increasing popularity of EV. “Palladium is used to treat exhaust fumes from gasoline-powered cars, for which demand is falling as China and other countries are pushing to produce EV. There should be little impact on supply,” said Zhang Xiang, Researcher, Research Center of Automobile Industry Innovation. However, the global transition to EVs will take time because some markets still rely on Internal Combustion Engine (ICE) vehicles.

In Mexico, consumers lack incentives to really consider them a viable option. Data from the Mexican Association of Automotive Industry (AMIA), shows that between Jan. and Nov., 2021, 42,969 hybrid and electric vehicles were sold in the country, representing 4.7 percent of the sales during this period.