TORONTO (miningweekly.com) – Billings, Montana-based Stillwater Mining believes it's likely that Russia's infamous stockpile of palladium metal is either almost or entirely gone, CEO Francis McAllister said on Tuesday.
Any inventories that still remain would probably not have much of an impact on the market if they were sold, especially given the strong industrial demand for the metal, he said at the company's annual shareholders meeting.
Stillwater is one of only two companies that mines palladium as its primary product.
Palladium is mainly used in emissions-reducing autocatalysts, primarily in gasoline engines, but also increasingly in diesel engines, together with platinum.
Rising vehicle production demand, especially from emerging economies, and limited new supply could send platinum prices to $3 000/oz, which could imply a palladium price of $1 500/oz to $2 000/oz, if recent ratios are maintained, McAllister said.
There are "huge deficits looming for both metals", he added.
The price of palladium more than doubled in 2010 and although the metal trended lower in the first quarter it has since recouped some of the losses.
One ounce of palladium, at $755/oz, is currently worth more than 40% of the same amount of platinum, up from 27% at the end of 2009.
And McAllister said he expects the gap will narrow further, potentially even approaching parity, as analysts and investors realise new technologies have made the two metals increasingly interchangeable on a 1:1 basis in catalytic converters.
And the platinum price will be supported by rising production costs in key producer South Africa, together with robust demand for both metals, he said, "so this convergence will result in sustained and higher prices for palladium.”
The palladium price will likely also move up further if and when, at some point, the market gets “concrete evidence” that the Russian stockpiles have been depleted, he said.
Russia has made a State secret of its palladium inventory, but recent comments from officials, together with the dwindling sales over the last couple of years, suggest the stocks are largely depleted, McAllister said.
Stillwater has also conducted studies of its own, interviewing analysts and experts that would have insight into the amount of metal the Russians were able to stockpile in the years before it started selling out of the inventory, and has reached a similar conclusion, he said.
The unquantified stockpiles, which accounted for some 25% of total palladium supply over the last 20 years, have created something of an overhang in the market, so the confirmation that the holdings have been depleted would be further good news for palladium prices.
Consumers will likely need to switch some consumption back to platinum as supplies of palladium become squeezed, McAllister said, which will in turn push prices for both metals upwards.
Stillwater reported record first-quarter net income of $36,2-million, a 170% leap from the same period a year earlier, as the company benefitted from surging metals prices and higher than expected mine production.
Stillwater, which produces palladium and platinum from two mines in the Beartooth mountains in Montana, bought Canada's Marathon PGM Corp for around $118-million in cash and shares last year.
First-quarter revenue rose to $170-million, compared with $133,5-million in the first quarter of 2010.
The company is working on permitting the Marathon project in Ontario, and could start production from the new mine in 2014 or 2015, McAllister said.
The project is expected to cost about $450-million.
Stillwater shares fell 6,6% on Tuesday, to $20,92 apiece by 16:02 in New York, amid a broad sell-off in North American mining stocks.