Precious metal prices, which had already been on the rise, are moving even higher amid Russia-Ukraine tensions. The recent price action accentuates the world's dependence on Russia's palladium (PA=F) and platinum (PL=F) supply.
“Rising geopolitical tensions are further amplifying the case for commodities, given Russia's far reaching impact on global commodity markets,” JPMorgan analyst Natasha Kaneva said in a recent note to investors.
Russia is the biggest exporter of palladium, the shiny grey-white metal mostly used by auto manufacturers for devices including catalytic converters. On Wednesday, palladium futures rose more than 3% on Wednesday, hovering around $2,450 per ounce.
“The market knows, no one wants any supply disruptions,” said Christopher Blasi, chairman of Neptune Global and creator of PMC, an index which gives a snapshot of the precious metals complex.
Platinum, also mined by Russia, is used by car companies for diesel vehicles. Platinum futures are up 14% year to date. Meanwhile palladium has rallied more than 30% since the beginning of January. Over the last five years the precious metal is up 215%.
“The amount of mine output has not been equaling what the consumption is," Blasi told Yahoo Finance. “So inventories have been getting depleted over the years. Now you add the geopolitical on top of it, that just kind of gives it a little boost.”
For now, sanctions against Moscow by the international community are not hitting Russian miners or exporters. They’re also not biting enough for Russia to retaliate by restricting any exports to Western companies.
But should there be a supply snag or sanctions against Russia’s metal exports, the effects could be outsized, especially when it comes to palladium.
“This will have a massive impact on the price, in my perception, because there aren't that many available sources,” Johann Wiebe, executive director of Wiebe Commodity Consulting, told Yahoo Finance.
“Automatically all the automotive companies are going to be affected” without Russia’s palladium, he said.
“This will also hurt General Motors (GM), Ford, (F) or some of the other American, Japanese, or German auto manufacturing companies,” said Wiebe, who is also a board member of the European chapter of the International Precious Metals Institute.
Gold (GC=F), sensitive to macro-economic conditions, has also been rallying the last several weeks, amid the recent geo-political tensions. But the precious metal is available in many other countries besides Russia.
Copper (HG=F) and nickel production are also more diversified around the world, compared to platinum or palladium.
“Relatively speaking, in terms of an impact on the total market, I think that it's more pronounced on the platinum/palladian side than it is on the nickel and copper side, for example. But that it has implications on all those markets, is a given,” said Wiebe.
Regardless of the Russia-Ukraine outcome, Wiebe sees an overall trajectory of higher prices for years to come.
“The current suite of metals and then the capacity and the production that is being utilized is not in the slightest going to be enough compared to the volumes that we need in order to get us to the plants that we sort of have stipulated for ourselves to become carbon neutral by 2050, and this affects a lot of those metals,“ said Wiebe.
“Commodity markets are sometimes quite volatile and there might be intermittent changes, with various shocks to the system, either to the up or to the downside. But I think the general trajectory is definitely in price support for higher prices across a bunch of commodities,” he added.
Ines is a markets reporter covering stocks from the floor of the New York Stock Exchange. Follow her on Twitter at @ines_ferre
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