The price of palladium fell to its lowest level in a year

The price of palladium in the world on December 23 reached its lowest level since mid-December 2021 – $ 1645 per troy ounce, according to data from the New York Comex exchange (part of the CME Group).

The price minimum during trading on Friday was fixed at 12:16 Moscow time. The precious metal quotation fell by 15% compared to the beginning of the month and doubled from the historical maximum of $3,440.8 per ounce, to which it rose in early March. At that time, there were fears on the market regarding interruptions in the supply of metal from Russia after the start of the NWO. Later, during trading on December 23, the March futures price corrected to $1,700 per ounce.

Russia is the world’s largest supplier of palladium, which is mainly used in catalysts for afterburning harmful emissions from internal combustion engines (ICEs). The country’s share in the world market is approximately 40%, the main producer is “Norilsk Nickel“. In the nine months of 2022, the company produced 2.13 million troy ounces of palladium, up 11% year-on-year. Metal production forecast for the full year is 2.45-2.71 million ounces.

In early April, the London Platinum and Palladium Market (LPPM), in response to the CBO in Ukraine, withdrew the Good delivery status (“reliable supplier”) from Russian refineries that process Nornickel’s raw materials into refined palladium. We are talking about Krastsvetmet and the Prioksky Non-Ferrous Metals Plant. This led to a shortage of palladium sponge and bars with a Good delivery certificate on the market, a break in supply chains and a significant increase in the delivery time of the metal to consumers, Nornickel noted in a market review on November 30.

This will cause major supply disruptions in 2023 once market demand, especially in the automotive industry, recovers, the company warned. Add to this the risks of production problems in South Africa, all factors indicate that the price of palladium will be volatile, Norilsk Nickel noted.

According to a review by the company’s analysts, a 600,000 ounce deficit of palladium is expected in the global market in 2022. This is 6 times more than previously thought. Palladium demand is down 4% this year to 9.5 Moz, while virgin palladium (not made from scrap) production is down 10% to 6.3 Moz, leading to more market shortages. than expected, explainednornickel“.

“While the automotive sector, the main consumer of palladium, is recovering faster than we expected, the growing market for electric vehicles and the moderate but continued substitution of palladium by platinum are holding back the development of the palladium market,” notes “nornickel“.

Norilsk Nickel expects a palladium market deficit of 800,000 ounces next year on the back of a further recovery in the automotive sector, while supply increases will be constrained by power supply problems with palladium producers in South Africa.

Commodity market analystOpening investments” Oksana Lukicheva notes that the trend towards a fall in the price of palladium since March 2022 is caused by a decrease in the consumption of this metal in the automotive industry. The head of the department of analytics for securities markets agrees with her. Alfa bank Boris Krasnozhenov. He explains that the automotive industry uses more than 80% of the palladium produced.

According to an October forecast by the Boston Consulting Group (BCG), global car manufacturing is slowly recovering from a microchip shortage. caused by the coronavirus. In 2022, this figure will grow by 2.6% to 79 million vehicles. Some growth is also planned in 2023 – up to 83 million. For comparison, in 2017, 95 million cars were produced in the world.

The Russian auto industry is doing noticeably worse. The cessation of deliveries of importers and the suspension of the production of foreign brands in the country due to the SVO led to a three-fold decrease in the production of passenger cars over the course of 10 months. In total, during this time, according to Rosstat, 386,000 units of passenger vehicles were produced.

According to Lukicheva, palladium imports to China in 2022 remained low also against the backdrop of quarantines due to COVID-19. Krasnozhenov points out that the disruption of supply chains and the situation with the shortage of semiconductors also had a negative impact on the global auto industry. “The 8% drop in car production and sales in China in November 2022 did not add optimism to the palladium market,” he notes.

In general, industrial demand for palladium is weakening due to its replacement with platinum, adds Lukicheva. “Fundamentally, the market is weak, and the expected recession in the global economy in 2023 worsens the outlook even more,” Lukicheva states.

She also recalls that in December, the United States imposed sanctions against the president and largest shareholder of Norilsk Nickel, Vladimir Potanin. As a result, there was a massive exit of stock players from palladium funds in anticipation of selling the metal on the world market at discounts.

Krasnozhenov adds that a significant decline in palladium prices could have a negative impact on Norilsk Nickel’s cash flows. But if palladium remains at $1,500-2,000/oz, the company’s financial performance is not expected to deviate significantly from market consensus.

According to Lukicheva, the price of palladium in 2023 may continue to decline and at certain points drop to $1300-1550 per ounce. But the average annual price of the metal is still estimated at $1,990 per ounce.

However, according to Krasnozhenov, at the beginning of 2023, we should expect an increase in the price of palladium, since fundamentally there is a steady deficit in the market, and there are no new projects that could significantly affect the balance of demand and supply of the metal. Average palladium price in 2023, estimated Alfa Bankwill be at the level of $1800-2000 per ounce.