| Moscow , RUSSIA |

“We upgraded our nickel and palladium market forecasts amid the rapid economic recovery in China, an expected bounce-back effect in the automotive industry in 2H as well as higher expected disruptions on supply.”

Anton Berlin  |

Marketing Director 

Norilsk Nickel.

A Report by Nornickel, with Financial Market Analysis from ICBC Standard Bank Moscow, May 14, 2020 — Nornickel, the world’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper presents the fifth review of the nickel and platinum group metals (PGM) markets prepared in alliance with ICBC Standard Bank on the basis of a fundamental analysis of world economic and industry data.

“We upgraded our nickel and palladium market forecasts amid the rapid economic recovery in China, an expected bounce-back effect in the automotive industry in 2H as well as higher expected disruptions on supply,” commented Anton Berlin, the Marketing Director of Norilsk Nickel.

PLATINUM GROUP METALS (PGM’s):

The recession in the automotive industry has affected the PGMs market as 80% of palladium and about 40% of platinum are used in exhaust treatment systems for gasoline (Pd) and diesel (Pt) ICE vehicles respectively. However, demand drop will be partly offset by disruptions in Mine supply and Recycling, resulting in a balanced market for Palladium and lower surpluses for Platinum in 2020

Palladium

The analysts have upgraded the palladium market forecast and expect a balanced market instead a 0.2 Moz surplus predicted a month before. The current forecast stands at 9.3 Moz both for the supply and demand sides. The palladium consumption is expected to decrease by —16% Y-o-Y, supply to fall by 12%.

According to market expectations, the automotive industry will be steadily recovering in 2H alongside the growth in palladium demand. The loadings in auto catalysts will advance thanks to the tightening of environmental regulations in China, the EU and the USA, including the implementation of policies to control exhaust pollution. Palladium substitution with platinum has not been implemented yet and thus has no immediate effect, it rather regarded a long-term prospect (estimated at ~100-200 koz pa after 2023-2024).

Mine closures in South Africa and North America, as well as lower recycling collection rates will result in considerable Pd & Pt supply drop in the market.

Platinum

The platinum consumption in 2020 is estimated at 6.2 Moz, 17% lower than in 2019, as a result of sluggish auto sales in Q1 as well as decrease in platinum demand for jewellery in China. The downturn in demand is mitigated by supply disruptions in South Africa, so the country’s PGM production forecast is downgraded by —30%. Accordingly, platinum supply in 2020 is expected at 6.8 Moz, and 0.6 Moz market surplus is forecasted.

Nickel:

Nornickel’s analysts improved the nickel market outlook for 2020. Currently, the market balance is estimated to be at a surplus of 130 kt. Nickel production is forecast to decrease by —1% Y-o-Y mainly due to the decline in Chinese NPI output. However, the impressive increase in the Indonesian NPI production will likely offset pandemic-related disruptions worldwide.

Overall, Nickel demand will drop by —7% Y-o-Y. The drop is driven by a weakened stainless steel sector, which accounts for over 70% of primary nickel consumption, and by a slump in auto sales including NEVs, resulting in fragile demand from battery materials producers.

Nickel demand from the stainless steel sector is expected to decrease by —6% Y-o-Y in 2020. In China, the demand will likely decline by just —4% Y-o-Y as the country rapidly recovered from the pandemic shock and re-started its economy in late March. The most significant downturn is seen in EMEA and America due to their different approach to lock-downs and delayed epidemic peaks, therefore a reduction of —13% Y-o-Y is expected in both regions.

The plating sector is anticipated to decline by —7% Y-o-Y as a result of the severe downturn in the automotive and electronics industries. Special steel, which is used in automotive, oil & gas, and chemical & petrochemical industries, is estimated to decrease by —9% with EMEA and America being affected more than China and Other Asia. Standard alloys are anticipated to dip by —9% Y-o-Y impacting America in particular on the back of the collapse in oil prices and postponement of investment projects. The nickel use in superalloys is seen falling by —10% Y-o-Y affecting America and EMEA regions specifically due to the current challenges in the aerospace industry.

Nickel demand in batteries was revised downwards to —15% Y-o-Y considering the plunge in NEV sales and the overall reduction in consumer confidence. However, the view that the long-term growth in nickel demand will primarily come from the NEV industry is still maintained, although at a slower pace than previously anticipated.

Although the nickel consumption for 2020 was downgraded due to weak end-use demand, nickel remains an essential element to achieve the goals of a carbon-free and sustainable economy. The stainless steel industry is expected to recover in line with the global economy, supporting the demand for nickel, while increasing EV penetration rates, nickel-intensive battery cell chemistries and favourable governmental policies will drive the expansion of nickel demand in the battery sector. Since 2000, the global nickel consumption recorded a compound annual growth rate of +4% pa, outpacing the GDP CAGR of +3.5% pa, and this trend is likely to be maintained.

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