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Data regarding key Russian palladium sources appears to support deficit forecasts.
Analysts continue to reiterate that they are bullish on palladium. This sentiment is largely based on seemingly strong supply fundamentals as it is widely projected that the palladium market will see a deficit this year. Russia is a top source of the metal, and recent data reveals that the amount of palladium available from the nation’s key sources — miner Norilsk Nickel (MCX:GMKN,OTC Pink:NILSY) and the Russian government stockpiles — is on the decline.
Norilsk Nickel’s palladium production
Norilsk Nickel is the world’s largest producer of palladium. In 2012, its total palladium production was 2,731,000 ounces, a 3-percent year-on-year decline, according to the company’s preliminary production results.
Most of the palladium extracted by Norilsk Nickel comes from its Russian divisions, Polar and Kola. Last year, production from these units totaled 2,628,000 ounces, also a 3-percent decline.
In 2012, Norilsk only saw supply growth from its African divisions, which include Tati in Botswana and Nkomati, a South Africa-based 50/50 joint venture with African Rainbow Minerals (OTC Pink:AFRBY). The company saw 116,000 ounces of palladium from these units, a 24-percent year-on-year increase.
Based upon its outlook, Norilsk is not expecting growth in total palladium production in 2013 either. On the contrary, further declines may be seen. The company is looking for about 2.6 million ounces from Russia and 25,000 to 30,000 ounces from its international divisions.
Russian stockpiles
It is believed that the palladium market would already have experienced a deficit if not for the stockpiles owned by the Russian government. However, over the past five years, those sales have been declining. Much of the current bullishness on palladium is based on expectations that Russian stockpile sales will dwindle further this year or cease altogether.
Anton Berlin, deputy chief of Normetimpex, a division of Norilsk Nickel, reportedly said that in 2013, Russian state sales will likely range from 0 to 3 metric tons (over 96,000 ounces).
Peter Duncan, general manager of market research at Johnson Matthey, also expects about 3 metric tons from the Russian stockpiles.
Such guesses stem from the fact that the amount of metal in the government’s stockpiles is a closely guarded secret. As a result, data about state sales tends to be compiled from indirect sources.
Switzerland is a major trading hub for palladium, and market participants commonly analyze Swiss import and export data to gauge the condition of various nations’ palladium activities — especially Russia’s.
Last year, palladium imports from Russia declined 72 percent, falling to the lowest levels seen since 1990. A recent Bloomberg article states that according to a Barclays report, only about 155,000 ounces were shipped to Switzerland in 2012.
Declines were also seen in the amount of palladium that the UK received from Russia. 231,000 ounces were shipped in 2011, but only about 180,000 ounces were imported in 2012. Likewise, only 198,000 ounces were shipped from Russia to China, marking a third year of declines there, as per Barclays.
Trade data from the past two months has added to expectations for less supply this year.
“The year-end spike in shipments to meet quotas did not materialize and December shipments were consistent with recent months at 6.4koz,” said Barclays.
That was followed by a January in which no shipments were made from Russia to Switzerland.
Barclays estimates that the market will only receive about 200,000 ounces of palladium from the state stockpiles this year. The firm is forecasting a deficit of 681,000 ounces; palladium is its “preferred pick” among the precious metals.
Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.
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