January 29, 2020 / 12:31 PM / 18 days ago

UPDATE 2-Nornickel's fund to deliver 3 T of palladium ingots to the market

(Adds context on palladium market size and deficit)

MOSCOW, Jan 29 (Reuters) - Russia’s Norilsk Nickel (Nornickel) said on Wednesday its Global Palladium Fund would deliver three tonnes of palladium ingots to the market from its current stock to provide a short-term relief to tight supplies.

Nornickel is the world’s largest producer of palladium. Spot prices for the metal, used by auto makers to reduce harmful vehicle emissions, briefly zoomed above $2,500 this month for the first time as power outages in major producer South Africa disrupted output, contributing to a supply squeeze.

Around 340 tonnes of palladium are consumed each year, and the market has been undersupplied for most of the last decade as auto makers increase purchases to meet more stringent environmental standards.

Nornickel observed significant tightness in the London and Zurich palladium ingot market in January, Anton Berlin, head of Nornickel’s marketing department, told Reuters via Nornickel’s press service.

“Nornickel believes that the market has over-reacted, as the underlying industrial demand is not evolving as quickly as the price move seems to indicate,” he said.

“A lack of ingots leads to higher lease rates, large backwardations and market turbulence. Nornickel is concerned about higher borrowing and hedging costs. This may be harmful for the palladium market,” Berlin added.

Traditionally Nornickel’s fund buys the metal from other holders’ existing stockpiles and then sells it on to industrial consumers.

Berlin also said Nornickel was increasing the share of ingots in its output versus palladium in sponge form this year, but that the company’s 2020 palladium production guidance of around 85 tonnes remains unchanged.

Nornickel continues to follow its sales strategy and makes 100% of metal produced available to the market with a focus industrial consumers and believes the market is fundamentally healthy, with industrial demand of its customers satisfied, Berlin said. (Reporting by Polina Devitt; additional reporting by Peter Hobson; editing by Mark Potter and Louise Heavens)

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