Top Palladium Miner Rebuffs Risk of Tesla Electric Car Boom

  • Norilsk sees electric cars limited to 15% of the auto market
  • Forecasts deficit for platinum and palladium in 2016

The rise of Tesla Motors Inc.’s electric cars won’t be enough to change the market for conventional vehicles or dent demand for the precious metals used to filter exhaust fumes, according to GMK Norilsk Nickel PJSC.

The lack of infrastructure to charge them and the pressure on power grids means that in the long term, the vehicles may comprise just 15 percent of the total auto market, according to Anton Berlin, head of analysis and market development for Norilsk. In the next five years, the market’s size will be limited to about 2 percent.

Norilsk is the world’s biggest producer of palladium, which are used along with platinum in catalytic converters that reduce car pollution. While the company would lose some business if electric cars, which don’t produce toxic emissions, becomes a significant part of the auto industry, it would benefit from more demand for nickel, which is used in the batteries.

"We do not expect the scale of electric car production to be large enough to replace the cars with internal combustion engines in the foreseeable future and to affect the platinum group of metals market," Berlin said in an interview from Moscow.

Electric Cars

Volkswagen AG to General Motors Co. are rushing to introduce electric cars and Tesla this month unveiled its most ambitious plan to produce 500,000 of the vehicles every year starting in 2018. That’s 10 times the number of vehicles it produced in 2015. Some analysts see the rise of electric cars as a long-term risk to the platinum and palladium industry.

The car industry will remain the main driver for the platinum and palladium demand, which will keep rising by 2 percent to 5 percent per year, Berlin said. Even if total manufacturing of electric vehicles reaches 1 million units per year, it will still be just 1 percent of the market, he said.

New standards of emission testing and other vehicles like hybrid, which combine gas and electric engines, will increase demand for platinum and palladium, Berlin said.

Norilsk expects a palladium market deficit of 500,000 ounces this year and shortage of up to 200,000 ounces in platinum, Berlin said. Future market balances depend on stockpiles, which are not transparent, and investment demand, he said.

Market Forecasts

Palladium’s deficit may widen to 700,000 ounces in 2017, while platinum’s may narrow to 130,000 ounces, Norilsk said in apresentation on Monday. The company registered a palladium fund and plans to buy "several tons" of the metal this year, Sergey Dubovitskiy, the vice president for strategical planning, told reporters.

Platinum prices are up 18 percent percent this year, while palladium has advanced 5.4 percent.

Mining of the metals in South Africa, a major producer, will likely fall, Berlin said. The local mines have been under-invested since 2008 and low prices kept about half of the output in Africa unprofitable in the first quarter, according to a presentation from Norilsk. He added that there’s also a risk of strikes as talks over labor contracts begin.

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