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The palladium market supply will balance in 2020

After several consecutive years of a supply deficit, the palladium market is likely to end this year with a balanced supply. This is a result of the reduction in car sales caused by COVID-19.

That is the prediction from Norilsk Nickel, a Russian mining company, and the world’s largest palladium producer. According to its estimates, the automotive sector is in the worst crisis it has ever been in decades. It caused an unprecedented contraction in palladium demand.

For the first time in almost a decade, the palladium market will close in on an equilibrium, instead of the traditional deficit.

According to the Russian miner, demand for palladium will fall 16% to 9.1 million ounces (283 tonnes). The primary industrial use for palladium is catalytic converters’ manufacturing to control emissions from internal combustion engines in gasoline vehicles.

Logically, as car sales fall, so will the demand for this metal. According to estimates, car sales are likely to drop by 22%, up to 70 million in 2020.

Other sources of demand for palladium, albeit to a lesser extent, are the dental, chemical, electronics, and jewelry industries. All of them will reduce their demand this year due to the economic crisis caused by the Covid-19 pandemic.

Nornickel estimates that China will be the only market that remains for the metal. Once the country overcame the coronavirus related restrictions, car sales recovered. It does not seem that the rest of the market follows it.

On the supply side, Nornickel forecast a 14% reduction in world production, to 9.1 million ounces (283 tonnes) this year.

Closure of South African mines will cause a drop in the metal supply

Most of the mines in South Africa, the second-largest palladium producer after Russia, had to stop production at the end of March. This was a result of the measures against Covid-19 that the Government under President Cyril Ramaphosa adopted.

This situation will cause the global primary supply of palladium to be reduced by more than one million ounces (31.1 MT) in 2020.

Over the last eight years, the palladium market has remained in a supply deficit. 

Before the Covid-19 pandemic, experts expected the palladium market to face a more significant supply deficit than in 2019. According to Anton Berlin, the marketing director at Nornickel, the market is likely to find a balance in 2020 and 2021. However, the deficit will return in 2022.

Another issue that could affect the demand for palladium is replacing it with cheaper platinum. However, Nornickel believes that it will not have an immediate impact.

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