At the end of 2020, MMC Norilsk Nickel predicts a deficit in the palladium market, which has been in this state for more than 10 years, amid the spread of COVID-19 and possible consequences, according to a review prepared by the company and experts from ICBC Standard Bank.
Initially, the company, together with experts, predicted a surplus of supply this year, later – the balance, and now – a deficit, which generally does not change the picture in this market.
The COVID-19 pandemic has impacted both the supply and demand of platinoids, affecting the entire chain – from mines and scrap metal collectors to car factories, and now Nornickel believes that in 2020 there will be a shortage of 400,000 ounces of palladium on the global palladium market This is after the company assumed a balance between supply and demand back in August.
“This year is far from balance,” Anton Berlin, director of the Norilsk Nickel marketing department, said during the company’s Investor Day. “But next year we really expect a significant surplus. However, we must say that a significant part of the surplus is likely to be absorbed by investment demand, as it had been in previous years. “
Industry. As Berlin noted, industrial production is a small part of the global economy, but it is worth watching to understand what is happening with the consumption of metals. “We have seen an intensive recovery in China, which is important for the market, as the country is the largest consumer of the entire basket of metals on the planet with a share exceeding 50%,” he said.
According to him, the automotive industry is becoming a very important sector for precious and non-ferrous metals, where the electrical infrastructure is increasingly used. “This year, in our view, is extremely difficult for the automotive industry, and the crisis is the most severe the industry has ever experienced. We are on the road to recovery. At the end of this year, sales are getting stronger, but it will probably be time before we will return to the pre-crisis trajectory of this market. Most likely only in 2022, “says Berlin.
Automotive dominates the use of palladium with a share of more than 80%. “It is therefore clear that lower demand for cars has had a negative impact on consumption, but this has been partially offset by more palladium in each individual car amid tightening global emissions regulations,” Berlin said.
According to Norilsk Nickel, in January-October, global demand for cars fell by 17%, which is very good considering that monthly drops in April and May were 50-70%. This can be considered the beginning of recovery. And expectations for an inevitable vaccine give rise to hope that the market will be able to recover most of the losses caused by the pandemic very quickly.
In 2021, car production will grow by 15%, which will almost neutralize the losses of 2020, according to the LMCA – the main expert in the field of forecasts for sales and production of cars.
This year’s downturn in the auto industry has led to a decrease in palladium and platinum consumption by 14% and 21%, respectively. “Our estimates show that palladium use in the industry will fully recover in 2021. Growth is expected to be 15% in 2021, driven by recovery in car sales and tightened environmental regulations,” the company hopes.
The main risk to this projection comes from a possible deeper and longer second wave of the pandemic, as well as delays in vaccinations, leading to a severe economic downturn, leading to a sustained recession and high unemployment. These factors will undoubtedly reduce car sales. “If this happens, we assume that a complete recovery of the market is possible later – in 2022,” the ICBC Standard Bank said.
Replacing palladium with platinum. Earlier this year, several South African mining companies, as well as auto giants, announced the availability of technology that could replace some of the palladium with platinum. This technology could be implemented by some US equipment manufacturers for multiple SUV and truck platforms, and they are currently testing this solution. If the result is positive, new technologies can find application in the models of 2023-2024, and can replace up to 30% of palladium.
“This means 100-200 thousand ounces, provided that up to 50% of the platforms will be converted, or 200-400 thousand ounces, if all manufacturers switch to new technologies, which is unlikely,” experts say.
There are also rumors that several Chinese manufacturers are testing similar original equipment, but the scope has yet to be determined. Manufacturers reportedly face a number of challenges that limit the substitution of platinum for palladium, namely the high temperature operating environment of modern engines, where platinum tends to sinter and lose its catalytic properties. There are other technical problems as well.
According to Norilsk Nickel, the substitution of platinum for palladium is based on the assumption that the world has accumulated a lot of platinum that is immediately available. However, there is a risk that the industry’s availability of the metal from platinum ETFs and other reserves is overestimated and could be limited.
In addition, platinum supply is biased towards South Africa and stagnant, while palladium supply is geographically more diversified. These factors lead to a cautious approach by producers to substitution potential.
Jewelry sector. Palladium is used in jewelry to obtain alloys of white gold, as well as in its pure form – for example, in wedding rings. During 2020, palladium consumption by jewelers continued to decline (-19%, to 220 thousand ounces), primarily due to the global drop in demand. “Given the difference in the price of gold and platinum, we do not expect demand for palladium jewelry to start growing in the next few years,” the survey said.
Sentence. Global primary refined palladium production (mining) is expected to decline 12% to 6.2 Moz in 2020 due to a build-up in work in progress caused by disruptions amid COVID-19, including the shutdown of Amplats converters. “Next year, we expect global refined palladium production to grow 17% to 7.3 Moz.
In accordance with Norilsk Nickel’s plans, primary palladium production in Russia this year will amount to 2.6-2.8 million ounces.
RF projects. The potential for new projects, Monchetundra, Volchetundra and Fedorova tundra, remains controversial due to funding uncertainties. This may change, however, as Fedorova Tundra was recently bought out by Rostec, a Russian state-owned industrial corporation with broad access to capital. According to a statement from the government of the Murmansk region, the new owners plan to launch the project by 2027. Its mineral reserves are estimated at 300 tons of palladium. The project will require about $ 800 million in investments. After reaching a stable level of production, Fedorova tundra will be ready to produce 5 tons of platinum and 15 tons of palladium. “However, we do not expect this to happen in the near future,” said Norilsk Nickel experts.
Gold Miner Bulletin