(Bloomberg) -- Russia’s invasion of Ukraine could lead to a significant increase in platinum demand as automakers substitute the metal for palladium in autocatalysts, according to the World Platinum Investment Council.

That could generate as much as 400,000 ounces of additional demand in the next year if automakers aggressively accelerate substitution in light of the war, according to Trevor Raymond, director of research at WPIC. Russia produces 40% of freshly mined palladium, and Western companies are increasingly shunning its exports.

While palladium is preferred by automakers for use in catalytic converters that curb pollution in gasoline cars, it’s increasingly being substituted by cheaper sister metal platinum. Palladium surged to a record on Monday, making it almost triple the price of platinum. WPIC already sees 340,000 ounces of palladium being replaced in 2022, a 70% increase on last year. 

“Small changes in substitution can make a huge difference to platinum demand,” Raymond said in an interview. “It just depends on the attitude of the automakers.”

The rise in substitution may partly explain a boom in Chinese platinum imports last year, which far outstripped identifiable demand for the metal and entirely absorbed its surplus, according to WPIC. Higher loadings in heavy-duty vehicles and a build up of stock by speculators and manufacturers may also have contributed, it said.

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