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Palladium price up 8%; lifts precious metals as London bans Russia PGM refineries

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(Kitco News) - The auto sector faces a significant supply crunch in palladium as two Russian refiners have been barred from western markets.

Friday, the London Platinum and Palladium Market, (LPPM) announced that it has suspended immediately the Gulidov Krasnoyarsk Non-Ferrous Metals Plant "Krastsvetmet" and the Prioksky Plant of Non-Ferrous Metals "PZCM" from its Good Deliveries Lists.

"Due to the events taking place in Ukraine, the Management Committee of the LPPM has reviewed its Good Delivery lists," the LPPM said in a press release. "These two refiners will no longer be accepted for LPPM Good Delivery into the London/Zurich Bullion market until further notice."

The new sanction in the precious metals market comes a month after the LMBA suspended six Russian refineries from its Good Delivery List. However, the latest move is expected to have a much more significant impact in the precious metals sector.

Most of the gold and silver Russia produces stays within the country. However, Russia represents up to 30% of the global palladium supply; it also represents about 10% of the worldwide platinum supply.

"Our immediate and conservative estimate of the scale of this disruption suggests that more than 102 tonnes of PGM output will be disrupted as a result of this decision, considering the epic scale of these refiners," said commodity analysts at TD Securities.

The supply disruption has driven palladium prices significantly higher. June palladium futures last traded at $2,420.50 an ounce, up 8.88% on the day. Analysts have said that there is room for palladium prices to move higher.

"This kind of disruption is going to be significant palladium. Prices are only going to go higher as auto companies do what they can to secure their supply of the metal," said Phillip Streible, chief market strategist at Blue Line Futures.

Streible added that April is also a positive season month for PGMs.

While the shock can drive palladium prices higher in the near-term, analysts at TDS also noted that the long-term impact could be limited as Russia has good trading relations with China.

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"China is among the largest consumers of palladium, which suggests a more limited impact to flows than suggested by the massive scale of the refinery's output," the analysts said.

The rally in palladium comes as the precious metal has struggled after rising to an all-time above $3,400 an ounce last month. The precious metal rallied at the start of Russia's invasion of Ukraine. Many investors expected Russia to hold back supplies as Western governments hit the country with harsh economic sanctions.

Platinum prices are seeing less of a lift. July platinum futures last traded at $975.2 an ounce, up nearly 2% on the day. Platinum prices have struggled to get back over $1,000 an ounce as analysts expect to see a significant surplus of the precious metal this year.

Palladium faced a significant supply deficit even before these new sanctions were placed on Russia.

The two precious metals are critical for the Auto sector. They are used in autocatalytic converters to reduce harmful emissions from gasoline and diesel engines.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.