Palladium supply dynamics are providing the primary price support in a market otherwise characterized by weakening demand. Nornickel — the world's largest palladium producer at 2.6 million ounces annually — is experiencing a structural decline in ore grades at its key Norilsk operations. Average palladium head grades declined to 4.2 g/t in Q1 2026 from 4.8 g/t in 2024, requiring higher throughput volumes to maintain output.
South Africa's PGM sector — responsible for 38% of global palladium — continues to face deep structural challenges. Amplats reported a 3% production decline in Q1, citing shaft refurbishment downtime at Mogalakwena (at least until Q3) and safety-related stoppages at the Amandelbult complex. Sibanye-Stillwater's US operations in Montana reported a 12% production drop, driven by lower grades and workforce attrition.
The operating cost environment is intensifying pressure on production. All-in sustaining costs for palladium mines rose to $1,020-1,100/oz in Q1 2026, compressing margins significantly from 2021-2022 when palladium traded above $2,500/oz. At current prices around $1,389/oz, many higher-cost South African operations are operating at thin or negative margins, raising the risk of further production cuts.
The Russian supply picture is complicated by sanctions dynamics. While EU sanctions on PGM imports have been discussed, no formal restrictions have been imposed. However, the complexity of sanction compliance has increased transaction costs and shifted trade flows, with a growing share of Russian palladium flowing through Switzerland and Hong Kong rather than directly to end users. The US Section 232 investigation adds another layer of supply uncertainty.
Supply contraction is narrowing the palladium market balance. Any acceleration in production cuts — particularly in South Africa — could trigger a sharp price recovery. Buyers should use the current price stability to secure term contracts with reliable non-Russian sources, paying attention to ESG compliance requirements.