Metals Focus: Record Palladium Prices Won't Lead To Supply Surge
(Kitco News) - Recent record-high palladium prices won’t necessarilymean increased supply since the bulk of the metal is mined alongside othermetals, meaning limited reaction to its own price picture, says Metals Focus.
The consultancy said Tuesday that it looks for globalpalladium production to decline by 2% to 6.7 million ounces next year.
There is an old commodity market adage saying thatnothing cures high prices like high prices (or conversely nothing cures lowprices like low prices). This is because when commodity prices soar, producers- whether they are in soybeans or cattle - tend to increase output in anattempt to up their profits. This often means an eventual oversupply,especially as consumers cut back at the same time due to the higher cost.
But for the supply side, this scenario may not play outin palladium, Metals Focus explained. Analysts pointed out that palladiumprices have nearly tripled since the start of the decade, yet supply is only upby roughly 10% since 2010.
“It is important to note that palladium is mined inpolymetallic ore bodies, with the metal forming only a portion of total minerevenues,” Metals Focus explained. “As such, mining operations’ economics arelimited in their exposure to the rise in palladium price.”
In fact, for the world’s largest palladium producer,Nornickel, palladium represents only 36% of total metal sales revenue, MetalsFocus pointed out. The company this week reiterated an expectation for a flatproduction profile out to 2020.
Further, Metals Focus sees a limited supply response tothe high prices for palladium production in South Africa. This country andRussia are the world’s two largest producers. However, South Africa is an evenbigger player in the output of sister metal platinum, for which prices havebeen weak. As a result of weak platinum prices, some platinum group metalsmines in South Africa are scheduled for closure.
“Platinum forms a larger share of these operations’revenue and thus the fall in platinum price has mitigated the benefit of risingpalladium revenues,” Metals Focus said.
Palladium historically was cheaper than platinum, but hasbeen more expensive for more than a year now, recently recording a recordpremium.
Meanwhile, an additional 250,000 ounces of palladium outputexpected in North America in 2021 may be partially offset by losses from Vale,which produces palladium as a by-product of nickel mining, Metals Focus said.
“This highlights why it is necessary to view palladiumproduction in the context of the PGM basket price,” Metals Focus said. “Formost operations, the decline in the platinum price has mitigated the rise inpalladium.”
By Allen SykoraFor Kitco News
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