Moscow, May 30, 2024 — Nornickel, the world’s largest producer of palladium and Class I nickel and a major producer of platinum and copper presents the thirteenth review of the nickel, copper and platinum group metals (PGM) markets.

Full reports are available on Nornickel’s website.

Nickel

Since the beginning of the year, the LME nickel price has risen from $16,000/t only to over $20,000/t. This was caused by many factors. Firstly, a number of high-cost nickel producers, mainly in Australia and New Caledonia, have suspended production due to the low-price environment and negative margins. Secondly, there have been ongoing delays with mining permit renewals in Indonesia. And thirdly, the scale of the nickel market surplus appeared to be lower than expected because of considerable underestimation of primary nickel use in China. As a result, LME nickel jumped by around 25% since the beginning of the year.

Compared with our December issue conclusions, the current price environment is more beneficial for nickel producers across the globe, with over 90% of all companies seeming to be cash-positive as of now. However, as around 400 kt Ni of primary nickel production are currently idled or being at risk of closure, we see the present supply risk still underappreciated. As we expect nickel use growing at a healthy pace this year, we think a combination of robust nickel demand and supply curtailments could provide a further impetus to the nickel price.

In 2024, we expect the nickel market to sustain a surplus of around 100 kt Ni (vs 190+ kt forecasted for the year in the previous issue of our report), with the most of it still represented by low-grade nickel. The commissioning of the Indonesian NPI, NPI-to-matte conversion capacities and HPAL projects is forecast to continue, although at lower than initially expected pace due to delays with issuing new mining quotas in Indonesia and decline in NPI grades, together with the ramp-up of new Class 1 operations in China and Indonesia. It will be accompanied by a moderate increase of nickel use in stainless, alloys and special steel as well as a steady growth from the EV batteries driven by an anticipated restocking cycle in the battery supply chain to emerge during 2024.

In 2025, we expect the market to remain in a surplus of circa 100 kt Ni, unchanged from the current year, as rising nickel demand from the melting applications and batteries will be offset by new nickel capacities’ commissioning in Indonesia and the growing production of nickel chemicals and Class 1 nickel.

However, higher stainless steel output and production of nickel-containing alloys could lead to even stronger nickel demand, while the ramp-up of Indonesian nickel capacities could underperform due to ongoing issues with mining permit renewals, decreasing NPI grades and a potential moratorium to build new RKEFs. Additionally, there is a risk of significant underperformance of some projects producing other forms of low-grade nickel, particularly FeNi and NPI in China, so the nickel market could potentially become more balanced.

Copper

In the first five month of the year, copper price experienced a significant growth and surpassed $10,000/t in May on the back of supply disruptions, sanctions against metals produced in Russia and positive investor sentiment spurred by the prospects of the interest rates reduction and fundamental market deficit.

Speaking of copper supply, Cobre Panama mine halted its production following local protests in the end of 2023, Anglo American reduced its production plans for 2024 and 2025 while Vale’s Sossego mining license was suspended. All these factors combined resulted in a concentrate shortage that pressured spot treatment charges in China to negative values forcing Chinese smelters to announce a 5-10% output cut, halt the expansion of existing smelters, and delay the start of new ones. Despite high metal price, mine producers are reluctant to increase production due to uncertain future price stability. Instead, they favour acquiring established businesses over investing in the lengthy and highly uncertain process of developing new mines.

On the demand side, mixed global macroeconomic indicators and the ongoing geopolitical tensions are pressuring copper market but we expect copper usage to increase in 2024 up to 26.2Mt or +3% YoY, this growth is mainly driven by China and India. Although the electrification growth slowed in the first half of the year, we still believe that the main driver of the current copper demand is the transition to a green economy. Unlike nickel and cobalt, which are predominantly used in electric vehicle manufacturing, copper’s use extends further and covers charging infrastructure and distribution network in general, which are less dependent on the current fluctuations in the electric vehicle market.

Considering factors above, we revised our refined copper market deficit for this year from 0.1Mt to 0.2Mt (three days of consumption) and we expect the market to remain in deficit next year as well. Looking ahead, it is crucial to accept that, without the development of new mines, a substantial supply shortage will emerge in the long term.

PGMs

For the six months since our last issue, the palladium and rhodium prices have been following a side-way trend as there were signs that destocking by automakers and catalyst producers significantly slowed down on the back of optimized stock levels and increasing supply uncertainties. With growing investments into vehicle electrification in recent years, automakers have seemingly changed their view on PGMs as strategic metals. However, as the global BEV sales slowed down, automakers slowly began to review their approach and return to the palladium forward market.

Palladium demand is expected to stay relatively flat in 2024. The vehicle electrification trend shifts from pure BEVs to hybrids (incl. plug-in) where PGM loadings are generally higher than in traditional ICE vehicles. Also, we are witnessing a wider introduction of extended-range electric vehicles (EREVs) equipped with an ICE (and consequently, with a catalyst) to charge the battery. These trends will support palladium use in the automotive industry, as most hybrid models & EREVs are gasoline-powered.

PGM recycling volumes remain under pressure of high borrowing costs, record low household savings, elevated used car prices and an increase in the vehicle lifespan. Additionally, lower PGM prices disincentivise scrap collectors from the secondary material release to the market.

Record-high net short positions coupled with structural changes in the South African PGM mining industry and limited autocatalysts scrap supply set the stage for the potential short squeeze on the palladium market in the medium term.

Production cuts in South Africa will also limit the mine supply of platinum and minor PGMs, which together with the recently accelerated R&D efforts will incentivise other PGMs’ substitution for palladium in hydrogen applications and other promising technologies.

We have revised our palladium deficit (excluding investments) estimate for this year from 0.4 Moz to 0.9 Moz, predominantly due to lower-than-expected secondary supply.

As for the platinum, we expect the market (excluding investments) to be balanced in the medium term.

Global platinum production is expected to decrease due to primary supply fall in South Africa caused by cost optimisation measures amid falling PGM basket price. On the other hand, the demand growth perspectives are weakening as the palladium to platinum substitution potential in automotive catalysts is close to exhaustion and jewellery demand is still under pressure due to the changes in consumer preferences and lower marketing support in China.

We expect that the 1:1 substitution ratio between platinum and palladium achieved in recent years in the biggest applications as well as the current efforts to ensure interchangeability of platinum group metals in the rapidly evolving high-tech industries will be the main driving force for a long-term fundamental price parity between the two metals.

As for 2025, we expect the palladium market deficit to be at 0.3 Moz with recycling being the main swing factor, while the platinum and rhodium markets to stay balanced. In the base case scenario, we expect the recycling volumes to improve next year, however, we should concede inevitable risks associated with this kind of forecast keeping in mind the persisting industry’s underperformance ever since the COVID-19 times. Besides that, we expect palladium mine supply to increase due to the recovery of production in Russia, while demand is expected stay on current levels. As for platinum, the industrial demand growth will offset the decline in the auto market while the increase in recycling will be counterweighted by shrinking mine supply. However, potential mine supply cuts caused by cost optimisation in South Africa creates significant supply risks next year, especially for platinum and rhodium.