RUSSIA'S failure to deliver supplies of palladium to the West this year threatens to inflict permanent damage on the market for the rare metal, and has sent consumers scrambling for alternatives, according to European analysts.

''The palladium supply situation has been highly unsatisfactory for users,'' said Wolfgang Wrzesniok, precious metals analyst at Dresdner Kleinwort Benson bank in Frankfurt.

''Consumers are likely to try other possibilities in order to reduce their dependency on Russia.''

Moscow's decision to suspend exports drove the price of the white metal well above $400 an ounce on May 18 and is forcing UK and other European consumers to seek less expensive or more reliable alternatives.

Although the price later fell back, palladium is still trading at high levels. Palladium, which is part of the same metals group as platinum, is used mainly in the manufacture of computer chips and by the motor industry where it used in catalytic converters used to clean up exhaust emissions.

Russia produces more than 60% of the world's supply of palladium and accounts for about 20% of global platinum exports and, although Prime Minister Sergei Kiriyenko has signed documents authorising export deliveries for 1998, political wrangling and bureaucratic problems appear to have impeded shipments of the metals westward.

Representatives of Russia's platinum and palladium export agent, Almazjuvelirexport (Almaz), were thin on the ground during a recent gathering in London of producers, dealers and consumers from around the world.

One UK-based trader, who asked not to be named, suggested the Russians are withholding exports of palladium and platinum to force the price higher and gain more valuable foreign exchange.

Whatever the reason, the lack of supplies has rattled the London precious metals market and has provoked warnings from experts that Russian foot-dragging will scupper demand for palladium.

Platinum, nickel and copper, from more reliable countries such as Canada, Chile, South Africa and Australia, can be used as a substitute for palladium.

''The long-term damage to palladium may already be irreparable. Already there's much increased talk of substitution by cheaper alternatives,'' said Trevor Pitts, platinum group metals marketing manager at Standard Bank and chairman of the London Platinum and Palladium Market.

Pitts told the gala London Platinum Week dinner last week that Russia's second year of export delays had already prompted substitution by car manufacturers and other consumers, spelling danger for the market.

He recalled announcements this year by Japanese car maker Nissan Motor and German motor parts maker maker Degussa about shifts in their exhaust cleaning technologies aimed at cutting palladium use. Japan is the world's biggest consumer of palladium.

''These developments just could be the tip of the iceberg which may eventually sink palladium,'' he said.

In the electronics sector, the Japanese ceramic capacitor maker Murata has already said it plans to stop using palladium.

''We started doing that (substitution) some time ago anyway; obviously we accelerated our programme using base metals like nickel and copper,'' said Bill Chisholm, product manager for Murata Electronics (UK).

Chisholm said palladium's soaring price had affected the unit costs of chip capacitor products - used in mobile phones, computers and sound systems - and Murata aimed to continue to move away from palladium.

''We are moving away from it anyway because before the price had gone up dramatically, it was still an expensive material anyway compared with nickel and copper that are two of the main base metals we are using,'' Chisholm added.

Wrzesniok said Germany's car industry might also follow the example set by Nissan, which earlier this year said it would return to traditional platinum-rhodium catalysts because of high palladium prices.

Industry sources said change would not come immediately, but with 70% of German cars now fitted with catalysts, small changes to the usage of one metal mattered a lot.

Degussa has already moved to lessen its dependence on palladium in making catalytic converters.

It said last month it planned to cut palladium usage by about 30% as result of new technology which would make it easier to manufacture palladium/rhodium catalysts.

A company official at Degussa said: ''Technologies cannot be transformed quickly, but palladium consumers in cars and dentistry have been looking at alternatives not just now, but as early as last year.''

''The party most likely to be hurt are the producers, namely Russia . . . it would be in Russia's best interest to secure its long-term relationships with its customers.''

Despite the move away from palladium by some consumers, London-based precious metals refiner Johnson Matthey still sees a strong market for the market.

In its platinum metals group report for 1998, Johnson Matthey says global demand for palladium surged by 21% in 1997 to a record 7.46 million ounces, creating a deficit of 210,000 ounces.

The report also says the use of palladium in anti-pollution catalysts increased by 31% to 3.1 million ounces.

The demand for palladium increased by 1.31 million ounces in 1997 and use of the white metal had nearly doubled since 1990.

It forecast that demand would again rise substantially in 1998, with even more palladium being used by the motor industry, which is under pressure to reduce emissions from new vehicles.

But the refiner warns that prices could soar to highs if Russia continues to hold back shipments. ''A continued absence of Russian sales could easily send prices to new highs . . . We expect that increasing demand and strategic rebuilding of stocks by consumers will support the price above $250,'' the report said.

Palladium closed Friday's London dealing at $352 an ounce.