Palladium prices have fallen by about 30% this year. As the market focuses on alternative demand for electric vehicles and oversupply, a key Russian supply risk may be underestimated. Nornickel, Russia's largest mining and metallurgical company, concentrated about 40% of the world's palladium refining capacity in July this year at the Monchegorsk plant on the Kola Peninsula. Since the plant is about 1,750 kilometers away from the northern border of Ukraine, it has entered the range of long-range strike capabilities demonstrated by Ukrainian drones. Once production is disrupted, it may quickly change the balance of global palladium supply and demand.
Foreign media reported that spot palladium is currently quoted at approximately US$1,154 per ounce, down approximately 30% from the beginning of the year. According to Nornickel's market estimates, the global palladium supply surplus in 2026 is about 300,000 ounces, but the monthly output of the Monchegorsk plant is estimated to be about 200,000 ounces. If production is suspended for one month, about two-thirds of the expected surplus may be consumed; if production is suspended for 6 weeks, the supply surplus may return to zero. This means that even if the factory is not destroyed, any damage to facilities or preventive shutdowns may have an impact on the market.
The expansion of Ukraine's long-range drone strike capabilities has exposed important facilities in Russia's north to new security risks. On September 9 this year, the Ukrainian Special Operations Forces (SOF) stated that drones flew more than 3,000 kilometers and attacked two natural gas condensate facilities in Russia’s Yamal-Nenets Autonomous Region, namely Gazprom’s condensate processing plant in Novi Urengoy and Novatek’s Provsky plant near Tarko-Saly.
The former has a designed production capacity of 19.5 million tons per year, and the latter will process 13.4 million tons of condensate in 2025. Both Bloomberg and Reuters reported this incident, and Artyom. Artem Zhoga also confirmed that this is Ukraine's first attack in the Arctic region.
Ukrainian special operations forces pointed out that these facilities were regarded by Russia as absolutely safe rear areas in the past. However, for the metals market, in addition to the attack on Arctic energy facilities, what deserves more attention is the Monchegorsk plant on the Kola Peninsula. The plant is about 1,750 kilometers away from the northern border of Ukraine, which is about 1,000 kilometers closer than the target of this Arctic strike. The difference in geographical distance has also made the market pay attention to its potential risks.
Nornickel completed an important capacity adjustment in July this year, transferring part of the precious metal processing links originally located at the Norilsk Copper Plant in Siberia to the Kola Mining and Metallurgical Company (Kola MMC) on the Kola Peninsula, which is also the Munchgorsk plant. According to reports from AK&M and Finnish media Yle, the chief process engineer of the plant said that all of Nornickel's palladium concentrate is currently processed in this plant, which accounts for approximately 40% of global palladium production.
The integration costs about 500 million rubles and Nornickel said it aims to increase metal recycling rates and reduce costs. However, the concentration of production capacity also means that once an accident occurs in a key factory area, the impact may no longer be limited to a single company, but may expand to the global palladium supply.
The Kola Peninsula has been attacked by Ukraine in the past. In June 2025, during Ukraine's execution of Operation "Spiderweb", the Olenya bomber base located about 30 minutes north of Monchegorsk was attacked. Nornickel also launched a public tender in 2024 to purchase six sets of steel cable protection devices for fuel storage tanks and key facilities in Monchegorsk, describing their use as preventing potential kinetic energy attacks from different targets.
In addition to geopolitical risks, Nornickel's own palladium production is also under pressure. The company's guidance for palladium production in 2026 is 2.415 million to 2.465 million ounces, which may be the lowest level in the past 20 years. Production in the first half of this year fell by 14% year-on-year to 1.199 million ounces. Nornickel attributed the production cuts to declining ore grades and being forced to stop using Western mining equipment, and said production would not recover until 2028.
According to Nornickel's market report, global palladium supply in 2026 is estimated at 9.4 million ounces, and consumption excluding investment demand is about 9.1 million ounces. The difference between the two is about 300,000 ounces, forming an expected oversupply. However, if investment demand of about 300,000 ounces is taken into account, the market may actually return to supply and demand balance.
Nornickel accounts for approximately 40% of the global primary mining supply of palladium. Therefore, the operation of the Monchegorsk plant may become an important factor in changes in supply and demand. Limited supply buffer space also makes the impact of short-term production disruptions more significant.
In addition, market liquidity may further amplify the impact. The Goldman Sachs commodities team pointed out in its latest report that tariff risks have caused a large amount of precious metals to flow into the U.S. market, and these metals may remain there for a long time, leading to a tightening of available inventories outside the United States. Due to the relatively limited liquidity in the palladium market, when investment funds flow back in or there are sudden problems on the supply side, capital changes of the same size may bring greater price fluctuations.
