Norilsk Nickel expects palladium demand to grow 5% in 2012
MOSCOW. Jan 24 (Interfax) - MMC Norilsk Nickel , one of the world's largest producers of platinum group metals, expects demand for palladium to grow by 5% in 2012 and push up prices for the metal, the company's deputy chief executive and head of sales, Viktor Sprogis said in an interview with Interfax.
"For PGMs, particularly palladium, we expect stronger growth [than for nonferrous metals - ed.], about 5%," Sprogis said.
In addition to a fundamental reason - the legal requirement to use catalytic converters in automobiles, demand is being stirred by the depletion of the reserves of state repository Gokhran, he said. The small amounts that Gokhran will export in coming years will not be able to qualitatively alter market conditions, Sprogis said.
There are plans to export 4.5 tonnes of palladium from the state fund annually in 2012 and 2013, after which exports might cease.
"The market has gone from a state of surplus into a state of deficit as a result of the end of supplies from Russia's reserves, which previously accounted for up to 15% of global supply. The consequence of this epoch-making event on the PGM market is that demand already exceeds supply and there is a risk that our production will not been enough to meet the all the needs of our buyers," Sprogis said.
Palladium prices in 2012 will top 2011 levels, unlike prices for nickel and copper, Norilsk Nickel expects. "In regard to palladium, we believe that the price will be higher than in 2011," Sprogis said.
Palladium traded at an average of $733 per ounce on the LME in 2011, up by 39% from $525 in 2010.
Norilsk Nickel believes that palladium is the most undervalued of all the metals it produces. However, the company does not want to see sharp fluctuations in prices for PGMs, as this has a negative impact on consumption both in the current period and the development of consumption in future.
PGM prices are so far holding at the level of fundamental support, Sprogis said. "Some producers, for example Aquarius Platinum, are already operating at zero or suffering losses at current prices. This means that the current price does not include an investment component, which means it will increase," he said.
Sprogis reckons the different between platinum and palladium prices should not be as wide as it is now - platinum prices on the LME were at $1,564 per ounce on January, while palladium prices were at $687 - because there are no fundamental reasons for such a spread.
"Historically - yes, there is. One of them is the constant surplus on the market formed due to supplies from Russia's reserves. The second reason is brand. Platinum is far better known than palladium, because our colleagues in South Africa have invested billions of dollars in the development of its brand over the past 40 years and continue to invest huge money. Therefore, the spread could remain at the level of this difference in the value of the brand. But since we are talking about industrial metals, I believe that the difference should not be so great," Sprogis said.
Norilsk Nickel sells just 3% of the PGMs it produces on the domestic market, where demand for PGMs ranges from 2 tonnes to 8 tonnes per year. Most of the demand on the Russian market is met by processing scrap, while demand for newly produced metal is very low, Sprogis said.
Norilsk Nickel produced 2.102 million ounces of palladium in the first nine months of 2011, 5% less than in the same period a year earlier, and 531,000 tonnes of platinum, unchanged from the previous year. PGMs generated 18% of Norilsk Nickel's revenue in 2011, the company has said. Norilsk Nickel's revenue to IFRS grew 24% to $7.335 billion in the first half of 2011.