The reluctance of precious metals traders to deal with Russian-made palladium is creating an unusual and persistent imbalance between the two major world markets.
In the European hubs of London and Zurich, traders can choose the origin of the metal they receive, while those who receive futures contracts on the New York Mercantile Exchange have no such choice. The threat of Russian bullion sent New York futures about $30 an ounce cheaper than similar-date London and Zurich forwards.
This gap usually creates arbitrage opportunities for traders who can buy metal in one city and send it to another, which ultimately narrows the price gap. However, the perceived risks involved in dealing with Russian metal – even where permitted – keep traders out of the way and prolong the deployment, according to the two traders.
Russian palladium has not been sanctioned, and only new bars face any restrictions in the European or US markets. However, traders are concerned that they could be stuck with Russian grade bars if they can't sell them. “Self-sanctions” is a topic of varying relevance in commodities markets as traders and manufacturers grapple with whether to go beyond restrictions imposed by governments.
The London Platinum and Palladium Market and CME Group Inc, which owns Nymex, removed Russian refiners from their accredited lists last month, meaning new bars cannot be bought and sold at the two malls. Those made before the suspension can still be bought and sold, according to people, but merchants are reluctant to process them.
Russia is the world's largest producer of palladium, accounting for about 40% of global supplies. So far, its exports of the metal, which is used to make catalytic converters in gasoline-powered vehicles, have been targeted only at the UK with increased import tariffs.
PJSC MMC Norilsk Nickel, the only producer in Russia, sells metal under contracts to long-term customers. However, there is already a significant amount of Russian metal on the market, in some cases from Soviet times.
Theoretically, traders could send Russian-branded bars to be melted down to be melted down, removing any trace of their origin. However, refineries are also reluctant to recycle the metal, according to people familiar with the matter. According to one source, at least one refinery was asked to do so, but refused.
This imbalance echoes the chaos that has gripped the precious metals markets in 2020. As the pandemic halted flights and forced the closure of refineries, bullion banks began to worry about their ability to ship the metal from London to the US, leading to massive price imbalances in the two markets.