How will the UK’s 35% tariffs affect platinum and palladium prices?
14:00, 13 May 2022
Russian platinum and palladium exports to the UK have recently been slapped with a 35% tariff by the UK government, which is also affecting other products such as chemicals.
In a blistering round of additional sanctions, the international community including the US, UK and the EU have made it clear that they intend to come down heavily on a belligerent Russia.
The new sanctions related to these two precious metals are expected to be worth about £1.4bn and affect both Russia and Belarus, which has been consistent in its support for the Russian invasion.
Since Britain is the second largest importer of platinum worldwide, this has come as a very strong move. With Russia the second biggest producer of both platinum and palladium, the new tariff is likely to considerably disrupt supplies to the UK, especially to London, which is one of the most prominent precious metals and financial trading hubs in the world.
Not only that, but this move comes soon after the London Platinum and Palladium Market (LPPM) banned two state-owned Russian refineries, the Krastsvetmet and Prioksy plants, and removed them from its Good Delivery List.
Platinum has fallen 20% since its March highs
How will this move affect platinum and palladium prices?
Although investors had long foreseen another wave of sanctions against Russian metals, which are quickly losing credibility in the global market, this move has still come as a bit of shock.
This is especially true as it is being seen as a blow to UK manufacturers as well, who will now also struggle with obtaining enough precious metal supplies. Investors are still trying to find alternatives to Russian metals following the recent LPPM Russian refinery ban.
Platinum prices have plummeted from their March highs of $1,170 per troy ounce (oz) to $910/oz at the end of April, before attempting a comeback over the last trading sessions. However, weakening demand from the Chinese auto catalyst sector has gone a long way towards putting a cap on prices. Chinese auto sales have recently recorded a drop of about 35% to their lowest level in two years.
Although these tarriffs will not directly affect precious metal prices, they are expected to heavily disrupt supplies to the UK, as a number of Russian exporters may not be able to afford higher export costs, thus tightening UK supplies and pushing prices up. With a number of UK manufacturers struggling to obtain enough supplies of both platinum and palladium, this may lead to supply chain blockages once more, providing a considerable boost to platinum prices.
Palladium has fallen almost 46% since its record peak in the beginning of March, a few weeks following the start of the Russian invasion, also fuelled by the drop in auto production. Although palladium is also used as an auto catalyst, it was the first to be shunned during the aforesaid dip as it is much more expensive than platinum.
Palladium also suffered a greater decline than platinum because one of the biggest producers in the world, the Russian Norilsk Nickel, was eventually hit with more sanctions.
With higher tariffs, however, Russian palladium’s fate may soon be sealed, as investors turn more decisively towards other major producers such as South Africa, thus giving palladium a much-needed raise and bringing it back into the market.
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Which are the main players that are likely to be affected?
Norilsk Nickel is one of the biggest platinum group metal miners likely to be affected by this move, as it is one of the largest producers of platinum, palladium and gold in the world, and is based in Russia.
When the first wave of sanctions hit, the company initially said it had found alternative routes to mobilise its metal output and circumnavigate the sanctions. However, these methods seem increasingly unlikely to work this time around, with added vigilance from the UK and EU.
Russian Platinum, another major producer of platinum group metals, is also likely to see some disruption, as the company operates the Kondyor Mine in Khabarovsk and the Chernogorskoye mine in the Norilsk area. The company also produces rhodium and gold, apart from platinum and palladium.
Eurasia Mining is yet another company which is likely to face the heat from this move, as although it is London-based, it has invested significant time and resources in its Russian mining assets over the years. It currently mainly operates in the West Kytlim mine, which has more than 1,689kg of platinum reserves.
The company has recently announced that it is “closely monitoring” Russian sanctions.
Is South Africa likely to fill in the gap left by Russian PGMs?
The president of South Africa, Cyril Ramaphosa, has recently gone on the record to say that the country is ready to take advantage of the shift in demand for platinum group metals from Russia to other countries, due to Western sanctions.
The country has been significantly ramping up production in these metals and attempting to negotiate with labour unions at precious metal mines, in order to ensure that production disruptions stay at a minimum.
In 2021, South Africa accounted for 70% of the world’s mined platinum output, and roughly 40% percent of palladium output. South Africa is also the country with the greatest PGM reserves, accounting for around 90% of the worldwide total. It is also benefiting greatly from the pinch in supply already felt by Russian supplies bowing out, giving South African metals a welcome jump in prices.
Not only that, but due to the ongoing oil and gas crisis with Russian energy providers, a number of manufacturers are turning towards renewable energy, in which platinum and palladium both play a crucial role. Hence, demand from those industries has seen a considerable surge.
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