A signal for metallurgists: how a record increase in palladium prices could affect Russian industry

On Thursday, November 28, world palladium prices renewed their all-time high. The cost of precious metals increased by 0.5% and for the first time reached $ 1821 per troy ounce. This is evidenced by the New York Mercantile Exchange NYMEX.

Since the beginning of 2019, palladium has increased in price by more than 50% and today has become the most expensive metal in the world. In terms of value, the asset noticeably outperforms gold ($ 1,454) as well as platinum ($ 893).

The rapid rise in the cost of palladium is largely due to the growing shortage of precious metals in the world. About this in an interview with RT told financial analyst at BCS Premier Sergey Deineka.

“There is still a shortage in the palladium market. Currently, demand for metal exceeds supply, and it is likely that the trend will continue in the coming years, ”the expert noted.

According to the forecast of Norilsk Nickel (the largest producer of palladium in the world. - RT ), in 2018 metal consumption exceeded production by approximately 800 thousand ounces. At the same time, in 2019, the palladium deficit may slightly decrease (up to 600 thousand), and in 2020 it will continue to grow again and will reach about 700 thousand ounces.

It should be noted that palladium is most actively used in the automotive and chemical industries, as well as electric power, medicine and jewelry. At the same time, as Andrei Lyushin, Deputy Chairman of the Board of LOCO-Bank CB, told RT, 80% of the global demand for precious metal falls on the auto industry. Palladium is used in catalysts of gasoline vehicles for burning exhaust gases.

It is noteworthy that in 2018 the world car market for the first time in nine years began to decline and dipped by 0.5%. At the same time, in 2019, the dynamics worsened. So, from January to October, sales of passenger vehicles fell by 5.3% compared to the same period last year. These statistics are provided by the analytical agency "Avtostat" with reference to the data of the consulting company LMC Automotive.

At the same time, automotive demand for palladium is still growing steadily and pushing prices. Interviewed by RT experts associate the situation with toughening environmental standards for automakers around the world.

“From 2020, Europe will be allowed to sell new cars only with engines that comply with the Euro-5 standard. The norm will allow gasoline engines to reduce sulfur emissions by 80%, soot - by 25% and nitrogen oxides - by 25%. Significant changes in engines and exhaust systems are needed to meet new requirements. We are talking about increasing the size of the catalysts using palladium, ”Dmitry Inogorodsky, an expert at International Financial Center, explained in an interview with RT.

A similar standard has also been introduced in China, the world's largest automobile market. It should be noted that in 2018, China accounted for about 30% of passenger vehicle sales. As a result, toughening environmental requirements for Chinese auto companies has become one of the main drivers of palladium appreciation.

"It was China that introduced the key price support. China’s standard 6 is being introduced. Gasoline engines and catalysts are expanding the share of palladium capable of converting harmful emissions into relatively safe substances such as water vapor and carbon dioxide," a senior analyst at an information technology company told RT. Alpari Analytical Center Anna Bodrova.

Against diesel

According to analysts, the high demand for palladium is associated with the growing popularity of gasoline cars and a decrease in demand for diesel cars. Experts attribute this situation to the car market to the consequences of the 2015 dieselgate. Then the Volkswagen concern turned out to be at the center of a large-scale scandal - 11 million diesel cars of the company around the world were equipped with software, which during the tests ten times underestimated the amount of harmful gases emitted into the air.

As a result, the share of sales of diesel vehicles began to decline, which provoked a reduction in the cost of platinum (metal is used in the manufacture of diesel engines) and a simultaneous rise in the cost of palladium.

According to the JATO Dynamics analytical agency, in 2018 the share of diesel cars in the EU countries fell from 44% to 36%. The value has become minimal over the past 17 years. Moreover, according to a recent study by the European Association of Automobile Manufacturers, in the III quarter of 2019, the indicator dropped to 29.1%.

To help industry

According to the Norilsk Nickel, the deficit of palladium in the world market will persist until 2025. Moreover, already in 2020, global car sales will begin to gradually recover and may grow by 0.1%. This is stated in the report of the International Monetary Fund.

As a result, according to the forecast of the analytical publication Wallet Investor, by the end of 2019, the price of palladium can reach $ 1840 per ounce, after which it will continue to grow rapidly. As expected, in 2020, quotes will fluctuate in the range of $ 1900-2160 per troy ounce, and in 2024 may exceed $ 3500.

It should be noted that today the largest palladium producers in the world are Russia (with a market share of more than 40%) and South Africa (32%). Relevant data are provided by the US Geological Survey. According to experts, the further rise in the cost of palladium can have not only a positive impact on the Russian metallurgical sector, but also on the country's industry as a whole.

“For Russian industry, such a demand for precious metals is a good sign. The favorites are not only palladium, but also nickel for the same reasons. This means that mining and production companies will be able to rely on this demand, which will positively affect financial performance, ”said Anna Bodrova.

According to Dmitry Inogorodsky, the development of the Arctic Palladium project should be an additional driver for metallurgy.

“The project capacity at the start will be up to 21 million tons per year, and total reserves are estimated at 770 million tons. Active investments are underway in this project, and if it shows good profitability, then perhaps the metallurgical sector companies will receive additional financial support, ”the expert concluded.