MOSCOW – Norilsk Nickel, the world's largest palladium producer, said on Tuesday tighter emissions regulations in all major markets and flattish primary supply would widen a palladium deficit in 2019.
Prices for palladium, chiefly used in emission-curbing auto catalysts, hit a record high in London on Tuesday as a threatened strike by South African mineworkers added to supply concerns in an already tight market.
Nornickel produces 40% of the world's palladium from its Russian assets. The company estimated that gross palladium demand reached a record high of 10.7-million troy ounces in 2018, mostly driven by consumption in the automotive industry amid flat gross supply.
"(The) spot palladium market practically dried out" in 2018, Nornickel said. The company said the supply tightness was partly eased by the release of stocks from palladium ETFs (exchange-traded funds), which fell below one-million ounces for the first time since 2009, and from Nornickel's Global Palladium Fund.
This fund buys the metal from existing stockpiles of other holders and then sells it to industrial consumers.
Nornickel said in 2019 the global palladium market deficit is forecast at 800 000 oz, compared with 600 000 oz in 2018, with consumption up by 500 000 oz to 11.2-million ounces due to strong demand from autocatalyst producers.
Nornickel, which competes with Brazil's Vale SA to be the world's biggest nickel producer, said the battery industry would increase consumption of this metal by 20 percent in 2019. Nickel is now mainly used as an ingredient to produce stainless steel.
"We believe that EV (electric vehicle) penetration growth will remain the key driver for high-grade nickel demand in the next 5-7 years," the company said.
Nornickel also posted 2018 results, where it reported 56 percent growth in its 2018 core earnings to $6.2 billion, the highest level since 2011, due to higher metal prices.
The company, controlled by Russian businessman Vladimir Potanin and aluminium producer Rusal, also said that its board would issue a recommendation for its final 2018 dividend in May.
Nornickel's 2019 capital expenditure is expected to rise to between $2.2-billion and $2.3-billion from $1.6-billion in 2018 as it prepares to boost output to take advantage of an expected boom in demand from electric vehicle makers.
Nornickel said its 2018 revenue increased by 28% to $11.7-billion on the back of improved metal prices, higher copper output and sale of palladium from earlier accumulated stocks.