Palladium Market: Supply and Demand

Palladium Supply

Russian supplies of palladium totalled an estimated 4.62 million oz in 2005. Norilsk Nickel produced just over 3.13 million oz of palladium during the year from its nickel-copper operations on the Taimyr and Kola peninsulas. The company was able to release details of its output for the first time following the relaxation of secrecy laws covering the Russian pgm industry. All of Norilsks palladium output is understood to have been sold during the year, the majority under contract to end users.

The remaining Russian metal was supplied to the market from two sources: the Russian State Treasury (Gokhran) and Stillwater Mining Co. In recent years Gokhran has not received an annual pgm export quota until late in the year, leading to substantial exports of palladium in late 2004 and early 2005, and again in December 2005 and early 2006. It's estimated that over 1 million oz of Russian state metal was sold into the market last year.

Our 2005 Russian supply figure for palladium also includes 439,000 oz of metal sold by Stillwater Mining. This came from the inventory of more than 877,000 oz that Stillwater received from Norilsk Nickel when the latter acquired a majority shareholding in the US company in 2003.

South African production of palladium climbed by 4 per cent to 2.59 million oz. Output increased from all of the major pgm mining groups with the exception of Anglo Platinum, where palladium production was disrupted by the problems at the companys Polokwane smelter.

Supplies of palladium from North America, however, dropped sharply, sliding by 130,000 oz to 905,000 oz. Although output from Stillwater, Inco and Falconbridge was stable, production at North American Palladium fell by 43 per cent due to a combination of a low grade ore zone in the mine, equipment failures at the mill, and lower pgm recoveries.

Palladium Demand

Demand for palladium climbed above 7 million oz for the first time in five years in 2005, increasing by 480,000 oz to 7.04 million oz. This was primarily due to a marked increase in purchases by the Chinese jewellery sector, although autocatalyst demand edged higher and there was growth in some electronic and chemical applications. Supplies of palladium slipped lower but, at 8.39 million oz, remained well in excess of demand. The palladium market, therefore, was in a state of surplus for the fifth year in succession.

Purchases of palladium for autocatalysts increased by less than 1 per cent to 3.81 million oz in 2005. Substantially higher demand was seen in Asia, with auto makers in Japan, China and South Korea all increasing their use of the metal. These gains, however, were largely offset by lower demand in Europe and North America.

Demand for palladium from auto makers in Europe fell below 1 million oz for the first time since 1996 as production of gasoline light vehicles continued to decline. North American demand also slipped lower as a further reduction in average metal loadings countered the positive effects of switching from platinum to palladium in catalysts.

Jewellery demand for palladium, on the other hand, surged by 500,000 oz to 1.43 million oz, becoming the second largest application for the metal. The growth was almost entirely due to the rapid expansion of purchases by Chinese jewellery manufacturers, as orders for palladium products from wholesalers and retailers swelled.

Purchases of palladium for electronic applications improved to 965,000 oz from 920,000 oz the year before. The growth was mainly due to greater use of the metal in plating; demand from multi-layer ceramic capacitor manufacturers slipped lower. The mature market for palladium in dental alloys was relatively stable, demand softening slightly to 845,000 oz, whereas purchases of palladium for use in other applications rose by 3 per cent to 620,000 oz. Demand for the metal in chemical industry catalysts was moderately higher at 320,000 oz, and sales of palladium bars and coins to private investors in North America also grew.

Price of Palladium

The price of palladium was capped at or just above $200 throughout the first nine months of 2005. Fund interest was strong during the first quarter, with speculative buying on NYMEX pushing the price from close to $180 to just over $200 in early March. However, substantial spot sales of metal prevented it from moving any higher and when funds subsequently reduced their long positions the price declined to a low of $172 in July. Renewed speculative buying emerged from September onwards, and with other metals markets rallying strongly, the palladium price broke out of its previous range and surged to a peak of $297 in December. The lack of support from the fundamentals, however, meant that when funds started taking profits ahead of the year-end the price fell sharply, finishing 2005 at $253.

Source - Johnson Matthey

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