Wednesday, September 15, 2010

"Russian palladium inventory exhausted by 2011? - Norilsk" (NILSY.PK: SWC; PALL)

Norilsk is the largest producer of platinum group metals in Russia. The ADR's trade on the pink sheets, the stock trades on Moscow's MICEX, symbol GMKN.RX. Anglo Platinum is South Africa's largest producer of PGM's mining over a million ounces of palladium a year. Stillwater mining is the largest producer in the U.S. but is a pipsqueak compared to most of the miners. The ETFS Physical Platium ETF has been a roller coaster since it began trading January 14:
Chart forETFS Physical Palladium Shares (PALL)

The futures trade on the CME and, like the physical, have been heading north since June.
From Mineweb:
Anton Berlin, Norilsk's marketing director says market consensus is that there will be no sales of palladium for the Russian state stockpile in 2011 and sees the metal sustaining a deficit for the foreseeable future

Mr Anton Berlin, the Marketing Director for Norilsk Nickel, has noted, in a presentation given at ETF Securities Ltd, that the market consensus is that there will be no sales of palladium for the Russian state stockpile in 2011.  While not committing himself to a personal view, he pointed out that while the size of the Russian stockpile, which is held by the Ministry of Finance, is a state secret and that there are therefore no valid data available, annual sales in 2007 to 2009 were a "fraction of historical values" and that this is believed to be an indicator that the reserves are approaching depletion.  Two years ago the government announced what it would be selling a quota over the following three years.  This has also suggested to some in the market that Russian state inventories are approaching exhaustion.

Independent evidence backs this up, certainly as far as 2009 and 2010 thus far are concerned, although GFMS figures suggest that Russian inventory shipments in the middle of the "noughties" were low and in 2002 the implied figure was a net import.

The significance of this, of course, is that the global palladium market is in a deficit and the shortfall has been regularly made up (and exceeded) by Russian sales from inventory.

Mr Berlin's presentation worked through the fundamentals of the palladium market, noting that Russian production in 2009, at 2.,7M ounces, comprises 42% of the world total, with South Africa at 39% with 2.5M oz.  Supply is at the behest of nickel mining in Russia and platinum in South Africa, so growth cannot be "regulated"; only the primary PGM mines in North America are governed by price (Stillwater's revenue, for example, is a 90% function of the palladium price).

Norilsk's production plans are published out to 2025, and there are no plans for any substantial change in either nickel or palladium output.  South Africa is looking to increase output and the ratio is moving in palladium's direction as the mines go deeper; ten years ago the Pt:Pd ratio in South African operations averaged 2.1:1; now it is 1.9:1 - but costs are rising as the mines deepen and production has not grown at the rate that the South African miners had originally planned....MORE