Will Palladium prices hold up with the world’s biggest Palladium producer back in business?

Nornickel, the world’s largest producer of palladium and high-grade nickel, resumed some of its critical operations earlier this month after undergoing repair works to improve the safety of its facilities.

The 86-year-old Nornickel boasts a whopping 41% share of world’s palladium mining production at 2,868,000 troy ounces. This figure is the highest since 2009.

Now, with the mid- to long-term increment in palladium production from Nornickel months from now, will palladium price go down?

Our take is Palladium prices will likely remain relatively stable as the palladium market has generally remained in significant deficit for a long time. According to the Johnson Matthey 2020 report, the deficit was affected for only a few months due to Covid19 from March 2020 where palladium prices dropped, but palladium prices soared up again in the second half of 2020 as businesses resumed. This significant deficit is related to tightening emissions regulations, such as the change from Euro 5 to Euro 6 in 2021. With more rapidly tightening emission regulations in coming up years in Europe, China and Japan, sufficient PGM loading is still required in catalytic converters to fulfil these new regulations. The automotive industry that requires PGM in the catalytic converters is also recovering well from Covid19 crisis.

Another factor that contributes to the ongoing palladium deficit is the increased demand in palladium ingots as investment by mainly China consumers during the brief fall in pricing. Yes, there is this global safe refuge investment trend of for palladium is gathering momentum and not just limited to Gold. This ingot investment method is also the case for platinum as well. Johnson Matthey reveals trade statistics reflecting that inventories of palladium bars stored in UK and Swiss vaults rose by over half a million ounces in the first eight months of 2020!

With years of prevailing deficits, the recovering automotive industry and the recent ingot retail investment demands, there appears little to worry about Nornickel’s increased palladium output to impact palladium price in the short term at least. The impact on long-term Palladium prices remain to be seen but other market dynamics will play a part too.

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Why did Nornickel shut down its operations?

So, what exactly happened?

On February 20, 2021, an ore transfer point and adjacent walkway collapsed at the Norilsk Concentrator, a facility that processes metal ores from various deposits into different types metal concentrates and/or other metal products. This incident sadly took the lives of three company’s employees; five other workers were injured.

The Concentrator is currently being inspected by Federal Service for Environmental, Technological, and Nuclear Supervision (Rostekhnadzor) and the Company’s internal technical auditors, to ensure it is fully in compliance with industrial safety requirements before functioning again.

Unfortunately, on February 12 2021, two of its mines, Oktyabrsky and Taimyrsky mines, had to close after natural groundwater inflow was detected in the mine headwall.

With these two incidences, the company’s shares dropped as much as 6.4% on the Moscow Stock Exchange.

Nornickel expects to complete its repairs and pass its enhanced safety measures compliance soon, to resume operations 16 March onwards.

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