Russia’s Norilsk Nickel (Nornickel), the world’s largest producer of palladium and high-grade nickel, expects the palladium market to be balanced this year, citing an “unprecedented” contraction of end-use demand as the automotive industry faces its worst crisis in decades.

This will be the first time in many years that palladium will shift from a deficit to a balanced market.

The miner forecasts that demand for palladium – which is mostly used in catalytic converters to control emissions from internal combustion engines in vehicles – will contract by 16% to 9.1-million ounces in 2020.

Car sales are estimated to plunge 22% to 70-million units in 2020, while other palladium-consumers, such as dental, chemical, electronics and jewellery industries are also expected to remain depressed, the company states.

“The only visibly strong market so far is China, where after coronavirus-related restrictions in the first quarter, car sales recovered strongly in April to June,” Nornickel says, pointing out, however, that there is a concern that other countries will not be able to follow China’s recovery pace.

On the supply side, Nornickel is forecasting global supply to reduce by 14% to 9.1-million ounces this year.  Mines in South Africa, a big producer of palladium, were put on care and maintenance in late March for 21 days, owing to Covid-19 mitigation measures.

“We expect the global primary supply to decrease by more than one-million ounces this year,” the miner states.

The palladium market has been in deficit for the past eight years, with cumulative deficits over this period amounting to 5.7-million ounces, according to the World Platinum Investment Council.

Before Covid-19 was declared a global pandemic, the palladium market was expected to be in an even deeper deficit in 2020 than in 2019.

"We probably will see the market bounce this year and next year, but the deficit might come back as soon as 2022," says Nornickel VP for sales and commerce Anton Berlin.

Meanwhile, on palladium substitution with platinum, Nornickel does not see an immediate impact on demand. “We regard it as a long-term prospect.”