Dieselgate scandal and Chinese automobile growth give rise to global palladium demand
Global palladium shortage may reach 970,000 ounces already by the end of the current year, according to predictions of Johnson Matthey, one of the world’s largest palladium distributors.
According to the company, last year shortage of the metal in the market was 100,000 ounces, while in 2015 these figures were equivalent to 300,000 ounces.
The reason behind this is the reduction in global production by 5% and a simultaneous increase in consumption. This year, according to Johnson Matthey, the global consumption of palladium will rise to 2 million ounces, that will also be due to the active development of chemical industry in China.
In the meantime, analysts of the Russian Ministry of Energy believe palladium shortage can also be explained by the growth of the automobile market in China, coupled with tightening requirements for cars in the country.
In recent years the demand for cars with petrol engines, based on palladium autocatalysts, in China has significantly increased.
According to analysts, the annual growth of the Chinese car market is estimated at 3-5% per month. At the same time the dieselgate scandal in Europe has resulted in the re-orientation of the EU car market to gasoline engines also.
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At the same time the increase of palladium prices, triggered by its shortage, according to some analysts, may result in serious difficulties for global palladium producers, as further price growth may lead to its replacement by platinum, which is used in diesel engines.
At the beginning of December an ounce of palladium was worth $1021.47 in global markets. This is 7.3% higher than platinum. If the trend continues in 2018-2019, producers of catalysts will start switching to platinum, instead of palladium.
Vladimir Potanin, president of Russian mining giant Norilsk Nickel, said in an interview with Bloomberg. He recalled in the early 2000s global automakers had faced the shortage of palladium, which forced them to re-orient on platinum.
In 2016, Norilsk Nickel created a palladium fund – Global Palladium Fund L.P. – with a financing limit of US$200 million. The Fund became a financial instrument for working with palladium reserves, while its existence stimulates the demand for industrial use of palladium and reduces volatility in the market.
Currently 40% of global palladium production accounts for Russia and South Africa, with Norilsk Nickel being the world’s largest producer (its share – 39.8%).
Norilsk Nickel this year plans to produce 3.5-3.7 million ounces of platinum and palladium and keep production at the same level in 2018-2020. The company also forecasts a palladium shortage of 1.2 million ounces in 2017, 1.8 million ounces in 2018, and 2.3 million ounces by 2020.
According to marketing director of the company Anton Berlin, the demand for palladium will grow due to the need to fulfill the commitment to reduce CO2 levels by 2021. Automobile industry will remain the main consumer of the metal.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>