Russia’s state metals depository is infamous for refusing to share just how much palladium it has left, but that doesn’t stop analysts from guessing. However, investors got a slightly clearer picture last Friday when Russia indicated it will buy domestically produced palladium to grow its stockpiles.
As Palladium Investing News discussed in December, there has long been suspicion that Russia’s palladium stockpiles are running low. The state metals depository is infamous for refusing to share just how much palladium it has left, but that doesn’t stop analysts from guessing.
Investors got a slightly clearer picture last Friday, when Russia indicated that it will buy domestically produced palladium to grow its stockpiles, Reuters reported. According to the news outlet, spot prices for palladium reached a height of $815.75 per ounce during trading hours in London following the news. The metal continued to gain on Tuesday as palladium for June delivery on the COMEX in New York rose as high as $830 per ounce and finished the day at $825.85, up $10.10 from the previous session, as reported by The Wall Street Journal. Prices were also lifted by the ongoing striking of platinum-group metals (PGMs) miners in South Africa.
Exchange-traded funds (ETFs), too, saw record gains. Bloomberg states that physically backed palladium ETFs in South Africa took on 500,000 ounces of the white metal in approximately two months, suggesting that the metal is gaining traction as an investment vehicle.
A prediction from this year’s Thomson Reuters GFMS platinum and palladium survey states, “[w]e expect palladium to remain in deep physical deficit (this year) in the order of 1.3 million ounces, metal that will need to be released by investors in order for the market to clear, suggesting that, barring the unlikely event of major disinvestment, prices will remain well bid.”
Gokhran making plans to buy
According to Reuters, Andrey Yurin, head of Russia’s precious metals and gems repository (also known as Gokhran), told Interfax, “[w]e’re committed to buy. Our view is that there is sense to buy.” In the past, analysts have estimated that supplies are dwindling due to the fact that Russia has made fewer and fewer sales in recent years. Even though Russia plans to buy from domestic suppliers, Gokhran’s switch from buyer to seller is indicative of the depository’s position.
However, Russia’s Norilsk Nickel (MCX:GMKN), top palladium producer and preferred source for the state’s imminent purchases, did not comment on the news, Bloomberg reported. The publication references an article from April 24 in which Norilsk CEO Vladimir Potanin is quoted as saying, “[p]alladium is not a gold and currency reserve. It should be sold rather than bought by the state.” Potanin went as far as to say, “I myself as a businessman would be interested to buy” if Russia sold its remaining stockpiles.
Shortage intensifying as South Africa drags on
As Bloomberg notes, PGMs shortages are slated to be the biggest in over 30 years in 2014. Auto producers are driving demand and an ongoing strike in South Africa shows few signs of letting up. Though Russia accounted for roughly 40 percent of palladium production last year, according to the publication, South Africa is also a significant producer. The Wall Street Journal states that analysts at Citigroup (NYSE:C) estimate that supplies of the white metal will be able to meet global demand for only 14 more weeks.
David Meger, director of metals trading at Vision Financial Markets, told the Journal, ”[w]ith the ongoing strikes in South Africa, supply constraint has definitely become an issue in this market.”
Anglo American Platinum (LSE:AAL), Impala Platinum (JSE:IMP) and Lonmin (LSE:LMI) were hopeful that the strike would end after some workers responded directly to wage offers, skirting the Association of Mineworkers and Construction Union. However, the strike turned violent as those attempting to cross picket lines were attacked, and the impasse continued.
Wellgreen Platinum (TSXV:WG,OTCQX:WGPLF) released results last Wednesday from recent assays at its PGMs-nickel–copper project in Yukon, Canada. The results indicate extended mineralization over roughly 2.5 kilometers from the far east zone of the Wellgreen resource to the far west zone. Mineralization at the Wellgreen project includes platinum, palladium and gold in addition to significant nickel, copper and cobalt.
On Friday, Stillwater Mining Company (NYSE:SWC,TSX:SWC.U) secured a five-year contract for the refining and sale of PGMs with leading autocatalyst manufacturer and precious metals refiner Johnson Matthey (LSE:JMAT). Under the terms of the agreement, the refiner will purchase all palladium mined by Stillwater in addition to a significant amount of the platinum it mines. Stillwater will use Johnson Matthey for its refining and recycling needs for its platinum and palladium under competitive terms, and Johnson Matthey will provide proprietary PGMs market analysis services to Stillwater Mining.
Finally, NovX21 (TSXV:NOV) reported yesterday that suppliers of catalytic converters in Europe and North America have sent materials to Novx21′s plant for processing. NovX21 sees the provision of these supplies as an indication of commitment by catalytic converter suppliers to meet new environmental standards. The company aims to secure long-term supply agreements in the future.
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.