Mike Fagan,
Editor
April 13, 2022
Automakers are bracing for yet another gut-punch as an escalating war in Ukraine puts the clampdown on the global supply of palladium (Pd) — used primarily in catalytic converters for vehicle exhaust systems.
The London Platinum & Palladium Market (LPPM) just announced a ban on two of Russia’s largest palladium refiners from western markets.
Those sanctions come just one month after the London Bullion Market Association (LMBA) suspended six other Russian refineries from its Good Delivery List.
That confluence of events is expected to have a major, prolonged impact on PGMs (Platinum Group Metals) — particularly palladium — with Russia representing about one-third of the world’s Pd supply.
That impact will be particularly hard felt by an auto industry that’s still reeling from an unprecedented semiconductor shortage caused by the pandemic with thousands upon thousands of new cars and trucks sitting idly on storage lots awaiting chips.
Despite soaring demand, auto manufacturers built 1.7 million fewer vehicles in 2021 than in 2019 — the last full year before the pandemic — due to the chip shortage plus a myriad of other supply-side factors.
We can now add two new items to the supply-side equation as a direct consequence of Russia’s invasion of Ukraine:
1. The world’s supply of palladium, and
2. The global supply of neon gas, which is used to make semiconductors.
Hence, any sort of return to “normalcy” in the automobile sector will likely be delayed by another year or more, which is unwelcome news for those of us who’ve been putting off a new vehicle purchase for fear of getting f’d.
As one might expect, we’re seeing a ton of volatility in the palladium price as a result of this latest round of sanctions against Russia’s largest refiners.
Palladium spiked to an all-time high above US$3,400 an ounce in early-March — just days after Russia’s incursion into Ukraine — before retreating to around US$2,150 an ounce.
With these new sanctions, plus the likelihood of more being announced over the coming weeks and months, the metal is once again gaining sharply (see 2-month Pd chart below).
Commodities analysts at TD Securities commented, “Our immediate and conservative estimate of the scale of this disruption suggests that more than 102 tonnes of PGM (Platinum Group Metals) output will be disrupted as a result of this decision, considering the epic scale of these refiners.”
Phillip Streible, chief market strategist at Blue Line Futures, echoed that sentiment, saying, “This kind of disruption is going to be significant for palladium. Prices are only going to go higher as auto companies do what they can to secure their supply of the metal.”
For months, we’ve been talking about the new commodities supercycle and the importance of reducing one’s reliance on critical commodities — including PGMs — from unstable regimes.
Of course, we didn’t want or need a war to prove our point… but much of Europe is now scrambling to get out from under Putin’s thumb in terms of oil and natural gas supplies.
Palladium has now risen to the forefront as the next shoe-to-drop… and it certainly won’t be the last!
We’ve also been talking extensively about how to position in this paradigm shift in commodities production from rogue nations like Russia to Tier-1 mining jurisdictions such as the United States and Canada.
In terms of PGMs, Russia currently stands as the world’s second-largest palladium producer, trailing only South Africa.
Canada and the United States chime in as the world’s fourth- and fifth-largest palladium producers, respectively.
The bulk of Canada’s PGM production is derived as a byproduct of the country’s massive nickel deposits. Not surprisingly, nickel charts have closely mirrored that of palladium since the onset of the war in Ukraine.
Meanwhile, Sibanye-Stillwater’s (NYSE: SBSW) Stillwater Complex in Montana is the only primary producer of PGMs in the United States.
Yet… and this is crucially important… our focus from a wealth-building perspective is not on the established, large-cap metals producers.
Instead, we remain laser-focused on the juniors — the small-cap exploration firms — whose expertise is on unearthing metals deposits in safe mining jurisdictions that will, in turn, lessen the world’s dependence on the Putins and Xis of the world.
This new supercycle in commodities we’re just now entering — particularly in the “green-energy” metals — is something we saw coming long before Russia’s invasion of Ukraine.
That wanton act of aggression by a global superpower means the commodities bull market we’ve been telling you about for months, along with the coming gains in the junior resource sector, are only going to be more immediate and forceful than initially predicted.
We’ve got you covered every step of the way in the new commodities supercycle.
And like I said, we began compiling our report well before Putin’s gross miscalculation of the strength and resolve of the Ukrainian people.
Inside, we cover everything from PGMs and gold to base metals and energy.
These supercycles only come around every quarter-century or so… lasting for just a few years.
With inflation taking an oversized bite… you do not want to miss out on the gains we’re positioning for now.
Mike Fagan
Editor, Daily Profit Cycle