RE: Russia Palladium Mining Forecast- Fitch28 Sep 2022 07:19
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Palladium's key commercial use is as a critical component in the catalytic converter, which is a part of a car's exhaust system that controls emissions, converting toxic gases, such as carbon monoxide, and nitrogen dioxide, into less harmful nitrogen, carbon dioxide and water vapour. Going forward, palladium has the potential to play a major role in virtually every aspect of the envisioned hydrogen economy, including hydrogen purification, storage, detection and fuel cells due to its hydrogen-absorbing properties.
In May, the World Platinum Investment Council noted that automakers were accelerating efforts to reduce palladium use and switch to platinum since it is cheaper. It is expected that the current shock will lead to changing consumption patterns that will reduce demand and prices for palladium in the medium-term. Traders in Zurich and London are reportedly reducing their purchases of palladium due to concerns that they may not be able to resell it in the event of additional sanctions, whereas the New York Mercantile Exchange does not allow buyers to select the origin of the metals they buy. As a result, there is a consistent discount in trades between Europe and New York and self-sanctioning behaviour may also put downward pressure on production.
In April 2021, Norilsk Nickel reported an improved 2021 production guidance, after downgrading its expected output earlier in March 2021 in response to natural groundwater inflow, which led to the suspension of its Oktyabrsky and Taimyrsky mines.
Norilsk had anticipated a full recovery at the Oktyabrsky mine by the end of April, and expects at the Taimyrsky mine at the beginning of June. The current production guidance for 2021 includes 190-200kt of nickel, 2.35-2.41moz of palladium and 580-640koz of platinum.
In 2020, Norilsk Nickel experienced a 2.0% y-o-y contraction in palladium production from its Russian operations, falling to 2.8moz. The reduction was attributed to an increase in work-in-progress inventory in transit to the firm's Polar Division, as well as high base effects from 2019.
Despite rising palladium prices, the Russian government will continue to exert tight control over the amount of palladium supply exiting the country, thus restricting the sector's growth prospects. Moreover, the country's high barriers to entry and restrictive regulation will discourage foreign miners from entering the mining sector.
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