Russian Palladium & Platinum: Too Important to Sanction

When on 7 March, the London Bullion Market Association (LBMA) suspended 6 Russian precious metals refiners from the London Good Delivery Lists for Gold and Silver, and in the process blocked from the London market any new gold and silver bars produced by these refiners, one unanswered question was whether the London Platinum and Palladium Market (LPPM) was going to follow suit and also suspend Russian precious metals refiners from its Good Delivery Lists for Palladium and Platinum.

This was more than a theoretical question because two of the refiners excluded from the gold and silver Good Delivery Lists by the LBMA were JSC Krastsvetmet (located in Krasnoyarsk) and Prioksky Plant of Non-Ferrous Metals, and both Krastsvetmet and Prioksky were also accredited refiners on the LPPM’s Good Delivery List for both Platinum and Palladium .

For anyone reading BullionStar Blogs, this LBMA – LPPM conundrum was not a surprise since we highlighted it on 28 February, saying that:

“Note too that the LBMA also administers the London Platinum and Palladium Market (LPPM), and there are two Russian refineries on both the current LPPM Good Delivery List for Platinum and the LPPM Good Delivery List for Palladium, namely “The Gulidov Krasnoyarsk Non-Ferrous Metals Plant” and the “Prioksky Plant of Non-Ferrous Metals” (a.k.a. Krastsvetmet and Prioksky).

To make matters worse, since the CME Group (operator of the COMEX) more or less clones the LBMA Good Delivery Lists and had the 6 Russian refiners on the COMEX “Approved Brands” lists, this forced the COMEX to follow the LBMA’s lead on 7 March and exclude the same 6 Russian precious metals refiners from these ‘Approved Brands’ lists for gold and silver, while leaving the Krastsvetmet and Prioksky refiners on the COMEX Approved List for Platinum and leaving Krastsvetmet on the COMEX Approved List for Palladium.   

For how could the LBMA in London, as it said in its press release on 7 March, suspend the 6 Russian refiners “with immediate effect” and “in light of UK/EU/US sanctions”, while its sister organization, the LPPM in London, did nothing about Krastsvetmet and Prioksky?

And how could the Commodity Exchange (COMEX) also on 7 March “effective immediately“ and “until further notice”, suspend “the approved status for warranting and delivery” of the 6 Russian refiners for their gold and silver brands, while leaving Krastsvetmet and Prioksky on its Platinum/Palladium approved brands lists?  

The answer is of course about money, and the fact that sanctions are a political weapon which can be ignored in hypocritical closed doors meetings in the City of London and Chicago/New York when it affects the bottom line too much.

LBMA and LPPM – Same People, Different Hats

As Reuters’ Peter Hobson pointed out in a 8 March article titled “London market green-lights Russia’s palladium while blocking its gold”:

“The London Platinum and Palladium Market (LPPM), an industry association, said it would keep the two Russian refiners it accredits on its “good delivery” list of firms whose material is eligible to trade in London.

“Traders and analysts said removal of the palladium refiners from London trading would have worsened worries over Russian supply that have sent prices to record highs.”

On 8 March, the LPPM also – with a straight face – added a hypocritical press release to its website, which said:

LPPM GOOD DELIVERY PLATINUM AND PALLADIUM UPDATE

Due to the terrible events taking place in Ukraine, the LPPM has reviewed its Good Delivery list and the US, EU and UK sanctions. Following that review it has decided to make no changes to the Good Delivery list.

We will however continue to monitor and review the situation.”

In other words, due to, in the words of the LPPM, “terrible events” in Ukraine, the LPPM decided to do nothing, all because Russian palladium and platinum are too important to sanction.

On the same day, Reuters published another version of its 8 March article  – which is now only available on the NASDQ website and is titled ”Russian refiners still OK to trade, says London Platinum and Palladium Market", in which Peter Hobson wrote that:

“Following a meeting of the Management Committee of the LPPM…, there will be no changes to our Good Delivery list," the LPPM’s Chief Administrative Officer, Jane-Anne Wardley, said.

So now we know that it was the LPPM Management Committee which made the decision to ‘make no changes’ to the LPPM Good Delivery Lists, despite what they called the ‘terrible events’ in Ukraine.

It’s A Big Club & You Ain’t In It!

And what or who is this LPPM Management Committee?

From the LPPM website management committee page we see that the LPPM Management Committee comprises individuals representing 9 heavy weight entities which are involved in the global platinum and palladium market, four of which are bank entities. These 9 entities and their representatives are:    

Chairman – John Cullen, Johnson Matthey Plc (US/UK refinery)

Members – Vincent Domien, HSBC (bank)

Thomas Kendall, ICBC Standard Bank (bank)

Anton Down, Royal Bank of Canada (bank)

Vikas Chamaria, T D Securities (bank)

 John Metcalf, BASF Metals Limited (trader – note BASF which took over the old Engelhard)

Andy Daniel, Heraeus Metals Germany GmbH (German refinery)

Joe Stefans, MKS Pamp SA (Swiss refinery)

David Jollie, Anglo Platinum Marketing Ltd (part of Anglo American Platinum, miner)

Note – Vincent Domien, now of HSBC, was a SocGen director of the London Gold Market Fixing Limited (the old London Gold Fixing) until 30 August 2019.

Seven of these Management Committee members are Full Members of the LPPM, namely HSBC, ICBC Standard, Toronto Dominion (TD), Johnson Matthey, Heraeus, MKS PAMP, and  BASF Metals. The other two, Royal Bank of Canada and Anglo Platinum, are associate members of the LPPM.

As there are only 14 Full Members of the LPPM, the other 7 full members of the LPPM which are not on the LPPM Management Committee are 4 banks – Goldman Sachs, JP Morgan Chase, UBS, and Standard Chartered Bank, and 3 precious metals refiners – Metalor (Swiss), Valcambi (Swiss) and Tanaka Kikinzoku Kogyo (Japanese).

In addition, the ‘Market Making’ members of the LPPM (whose trading desks make two-way markets in palladium and platinum) are Goldman Sachs, HSBC, ICBC Standard Bank, JP Morgan Chase, Standard Chartered Bank, Toronto-Dominion Bank, and UBS.

And there’s more. Each business day in London, a group comprising Goldman Sachs, HSBC, ICBC Standard, Johnson Matthey, BASF Metals, along with StoneX, take part in the daily LBMA platinum and palladium auctions so as to ‘establish’ benchmark prices for the daily LBMA Platinum Price and the LBMA Palladium Price (price data which by the way is intellectually owned by Precious Metals Prices Limited – which is a subsidiary of the LBMA).

And finally, these LBMA Platinum and Palladium auctions, which are run for the benefit of the LPPM’s ‘market’ (a market which is behind the scenes administered by the LBMA), are run on a daily basis by the London Metal Exchange (LME).

As George Carlin once said “It’s A BIG Club & You Ain’t In It!”

Shockingly, the LPPM’s decision to keep the Russian refiners Krastsvetmet and Prioksky on the LPPM Good Delivery Lists for Palladium and Platinum comes despite the fact that the LPPM’s own ‘Responsible Sourcing program” which is overseen by the LPPM Management Committee, has a “Sanctions Policy” which says:

“SANCTIONS POLICY

Failure to meet the standards required could have serious implications for LPPM Good Delivery refiners. Sanctions could include suspension subject to resolution or being transferred to the Former List with immediate effect.”

However, on this occasion, the LPPM Management Committee seems to have thrown its sanctions policy out of the window, hoping that no one would notice.

The Criticality of Russian Palladium Supply

While South Africa is responsible for 75% of global Platinum mining supply, with Russia accounting for just over 10% (Russia is forecast to generate a 2022 supply of 661 koz out of a global total of 6119 koz according to the World Platinum Investment Council (WPIC)), it is in the Palladium market where Russiaan supply is critical, since Russia accounts for 40% of the global palladium supply. See the latest WPIC presentation slide desk (dated March 2022) here. 

In Russia, mined palladium is a by-product of nickel mining, with nearly all Russian palladium supply being mined by the mammoth MMC Norilsk Nickel The next biggest palladium producer is the South African-US combine Sibanye-Stillwater.

According to the latest Heraeus “Palladium Standard” report from September 2021 (produced by SFA Oxford), Russian palladium production in 2021 was forecast to be 2350 koz out of a global total of 6,770 koz (or 35% of global palladium mine supply).

However, in 2021, Russian palladium supply was less than normal due to mine flooding and a concentrator accident, which reduced supply by about 365 koz. So in a normal year, Russian palladium supply is about 2800 koz, or about 40% of global annual supply of 7000 koz. See the Heraeus ‘Palladium Standard’ report here. 

On the demand side, palladium is critical for the global automobile industry (along with platinum), where both metals are used in auto-catalytic converters that reduce exhaust emissions – as both palladium and platinum are excellent catalysts and are somewhat substitutable. Both palladium and platinum are also used widely in industry, e,g. in computer chips and electronic devices.

Furthermore, both metals have a large demand driver in the form of jewelry and importantly, platinum and palladium are both investment precious metals, with both metals are held in physically backed Exchange Traded Funds (ETFs), and both metals are fabricated into investment platinum and investment palladium bars and coins.

Conclusion

So now you can see how important Russian palladium is to the LPPM trade group, and to the banks, traders, and refiners of the LPPM.

If Russian palladium stopped flowing to market, there would be serious problems, especially for the global auto and computer chip industries. And the same, to a lesser extent, goes for Russian platinum supplies.

And since the LPPM could hardly sanction Russian platinum without sanctioning palladium as this would draw even more attention to the double standards and political nature of the sanctions, hence the LPPM put its head in the sand and sanctioned neither, hoping that it would all blow over.

Which is also why the US/UK/EU sanctions have avoided sanctioning the ‘final boss’, the giant Norilsk Nickel. Because Norilsk Nickel, the world’s largest palladium producer and a major producer of platinum is, as the Wall Street Journal put it recently, ‘Too Big to Sanction’.

So now you can see why the LPPM Management Committee threw its sanctions book out the window when confronted with having to sanction the Russian palladium and platinum refiners Krastsvetmet and Prioksky, despite what the LPPM called the ‘terrible events” in Ukraine. Because, in the world of the bullion bank controlled palladium and platinum markets in the City of London and on COMEX, money talks while everything else walks.

And the bullion banks couldn’t have the palladium and platinum prices spiking in London in the same way as the nickel price debacles. What if it spilled over into silver? Or gold?

And which is why on 24 March, when UK prime minister Boris Johnson, ahead of the NATO-G7-EU meetings in Brussels, talked about “tightening the economic vice" on Vladimir Putin, and “looking at what we can do to stop Putin using his gold reserves”, while not surprisingly failing to mention the LPPM and the double standards of the City of London when it comes to palladium and platinum.

Because “tightening the economic vice" on Russian palladium and platinum, would seize up the global auto industry and could find Boris having to ride his bike to work each day instead of being chauffeured in a 2022 emissions friendly Bentley.