VW Scandal's Boost for Palladium Seen Sustained, Top Miner Says

  • Norilsk sees platinum ratio at 13-year low matching demand
  • Biggest miner of metal earns more from palladium than platinum

The boost for palladium prices after a scandal at Volkswagen AG over car pollution tests will probably be sustained as the metal’s biggest monthly jump in two years brings it into line with supply and demand, according to GMK Norilsk Nickel PJSC, the top producer.

Prices of palladium, used in autocatalysts to filter exhaust fumes, mostly from gasoline cars, has surged 16 percent since Sept. 18, when it emerged Volkswagen had rigged diesel vehicles to help them pass emissions tests, exposing it to as much as $18 billion in fines. Platinum, used more in diesel catalysts, has declined 3.4 percent in the same period as investors speculated that car buyers would switch to purchasing gasoline vehicles.

The premium paid for platinum, also used in jewelry, over palladium sank to near a 13-year low after the scandal broke. An ounce of platinum now buys about 1.35 ounces of palladium, compared with 1.84 ounces near the end of August, according to data compiled by Bloomberg.

"The current ratio is good enough from a fundamental point of view," Anton Berlin, chief of strategic marketing at Norilsk, said in a Moscow interview. While “investors’ reaction to the diesel scandal was very emotional,” and not justified, the ratio may now be stable, he said.

The previous price gap was too wide and didn’t reflect fundamentals as both metals are used in gasoline and diesel autocatalysts, just in different ratios, according to Berlin.

Makers of the devices for gasoline engines use more palladium than platinum as it’s cheaper, he said. Autocatalysts for diesel need higher levels of platinum, and contain about 30 percent to 40 percent palladium, Berlin said.

"The metals are similar in quality and both have the auto industry as their main markets," Berlin said. In the production of autocatalysts for gasoline vehicles, "you can use the metal you prefer but due to the price difference it’s usually palladium," he said.

Palladium is more important for Norilsk’s operations, making up about 23 percent of its total sales during the first half, compared with an 8 percent contribution from platinum. Palladium prices rose 8.7 percent last month, the biggest monthly gain since July 2013, while platinum slumped by 10 percent in the period, its largest collapse in four years.

While the VW scandal has brought benefits for Norilsk, the miner is still cutting spending after the price of nickel, making up about 40 percent of its revenue, collapsed about 40 percent in the past year to levels last seen during the 2008-09 global financial crisis.

Balanced Market

The slump isn’t supported by supply and demand, Berlin said. “We have a more or less balanced market now; we see it in deficit next year,” he said. “But the price is disconnected from those factors. We now have amateur players in the market who don’t really understand commodities and look just into the general economic picture.”

At the same time he said that not enough capacity is being taken out of the market, with at least half of producers around the world losing money because of cheap financing. Only about 3 percent of world nickel capacity has been closed, Berlin said.

"We expect that between now and three months, the shutdowns should start," he said.

The market for copper, another metal Norilsk produces, is doing better, Berlin said. "The market is balanced, the price is fair,” he said. “Prices probably won’t go lower."

For now, nickel consumption isn’t at risk from steel recycling in China because it may take decades for enough scrap to be generated to affect the steel market, Berlin said. Nickel is mostly used in stainless steel.

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