The Bright Future of the Palladium Market

Transcription

1 The Bright Future of the Palladium Market Denis Sharypin Head of Market Research, Nornickel OCTOBER 16, 2017 BARCELONA THE LBMA/LPPM PRECIOUS METALS CONFERENCE 2017

2 Stagnating Pd Mine Supply 2

3 Palladium has Become a Co-product of Platinum and Base Metals Mining Drivers: African Pt:Pd output ratio has shifted from 2.0:1 to 1.7:1 in 10 years due to the shift from the Western Limb to the Eastern and Northern Limbs coupled with higher Zimbabwean output Higher share of disseminated ores in Norilsk with relatively higher PGM content Lower Ni and Pt prices, but higher Pd prices Revenues split by metal 1% 12% 13% 23% Nornickel 9% 8% 30% Nornickel now is neither copper, Nor Nickel, but PGMs South Africa PGM Miners 8% 5% 1% 2% 18% 1% 7% 3% 7% 27% 51% 26% 64% 56% 27% H2017 Ni Cu Pd Pt Other H2017 Pt Pd Rh Au Cu Ni Pd share is equal to the Ni share for NN 3 Source: Company estimates, Official reports

4 2017: Pd Primary Supply is Likely to be Flat or Decrease Slightly Lower Pd sales by NN in 2017 due to destocking in 2016 Flat SA output in 1H H 2017 should be impacted by Bokoni and Maseve closures NN sales, koz Sale of stocks accumulated in 2015* koz Guidance range tonnes 40 SA PGM production, excl. concentrate from Zimbabwe % Jan-Jul 2017 Y-o-Y E Production Stocks sales Production guidance 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * Metal reserves, created to smooth out the transition to the new configuration of smelting and refining capacities (shutdown of Nickel Plant, increased shipments of nickel matte for processing to Kola MMC and to Harjavalta in Finland) scheduled in 2016, which is expected to result in a one-off increase in work-inprogress in transit and lower output of saleable metals (Nornickel Annual Report 2016) 4 Source: Company estimates, SA Statistics Bureau

5 Going Forward: NN Flat Production Profile, SA High Risk of Pd Supply Disruptions Nornickel Expansion CAPEX ($400 million in 2016*) allows to keep the output profile flat Deferred CAPEX in SA will lead to a deterioration of the production base mn 20 Nornickel CAPEX by mine 25 SA Producers capital expenditure, billion ZAR bn ZAR Oktyabrskiy mine Zapolyarniy mine Komsomolskiy mine (excluding Skalistiy) Skalisity mine Taimyrskiy mine Base production without "expansion" CAPEX Source: NN estimates as of FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Amplats Impala Lonmin Northam 5 * Excluding Bystrinsky greenfield copper project with no PGMs; including assets reconfiguration and environmental projects Source: Company estimates, reports

6 Additional Pd Supply From SA Would Result in Higher Pt Supply ~50% of South African PGM Production is Unprofitable or on the Edge of Loss-Making but the Pt market is more balanced than the Pd Producer Operating Costs - ZAR/4E oz CAPEX NCC Quartile 1 Quartile 2 Quartile 3 Quartile 4 koz Market Balance Forecast Consensus (before Bokoni and Maseve closing announcements) Pt Pd YTD Basket (4E) Price ZAR E 2018E 2019E 2020E 2021E 0 SA Producers cannot deliver additional Pd ounces without impacting Pt market The risk of closures in SA is high 6 Source: SFA Oxford, Company data, Consensus forecast (5 participants)

7 Palladium Production Growth Opportunities in North America are Limited 180 koz Pd output in N. America remains marginal (14% of global mine production) Incremental supply of Pd-driven producers partly offset by decreasing Pd by-production from Ni mines Pd-driven producers -80 koz Pd production as by-product 7 Source: Company estimates, Sibanye-Stillwater, NAP official statements

8 Not Only the Operation Cost That Matters It takes about 10 years and over US$1 bn to build a sizeable underground mine from scratch Increasing capital is required just to maintain production levels due to the ever-deepening nature of the resources and decreasing metal contents in ore Excluding operational costs, producers have a wide range of implicit costs: Nornickel Sulphur project is expected to cost up to 3.5 bn USD in The new edition of the Mining Charter in South Africa might be enacted by the end of 2017: BEE redistribution of the capital Revenue taxes for the black communities development Procurement via BEE REACH and other legislation challenges 8

9 Recycling Growth would not be able to Balance The Market as it Lags Behind Pd Demand Pd consumption in the automotive industry has been growing since 2010s but it takes years before these higher Pd loaded vehicles come for recycling MOz Avg age of recycled catalyst: years g/vehicle 6 5 MOz 3 CAGR +5% or +100 koz pa (auto consumption +500 koz pa) CAGR +13% Pd Global Automotive Demand Pd loadings in N.America Pd Autocatalyst Recyling 9 Source: Company estimates

10 Supply Growing Pd Demand 10

11 Global Vehicle Production Growth, Emission Legislation and Powertrain Shifts Drive Pd Demand Production of Pd consuming vehicles to grow +18% by 2025 New environmental regulations, especially in China, push automakers to increase PGM loadings Hybridization is a key solution to meet stricter CO2 targets as the diesel share is falling Low oil prices and growing share of SUVs result in engine downsizing termination. Hybrid displacements are growing Hybrids contain more Pd per vehicle vs conventional gasoline engines with the same engine size BEV is growing from a low base, penetration is limited (Consensus FC: 5% production share in 2025) MOz of additional Pd consumption in auto industry by

12 Supply Stocks Depleted 12

13 Available for Consumption Palladium Stocks are Depleting A very clear trend, seen since 2010, confirms that the Pd usage exceeds supply and requires involvement of the stockpiles Palladium NYMEX stock movement also reflects depletion of on-ground stocks MOz 8 6 inflow Swiss & UK Palladium net trade koz Palladium NYMEX Stocks outflow CH UK Cumulative total Gokhran stocks have depleted* Existing global stockpiles are not uniform Deliveries by Gokhran Potentially available stocks (price determinant) Low-elastic stocks YTD Non-elastic stocks 13 Source: Swiss Federal Customs Administration, HM Revenue & Customs, Bloomberg, Company estimates * According to Analytical agencies reports

14 PGM Market Balance Metal Stocks, days of consumption Market Balance Forecast Medium-term Fundamentals Koz Deficit Palladium -2.7moz Jan 2016 Aug 2017 ETF stocks Other non-elastic stocks Other elastic (300) (1000) (1750) E 2018E Platinum Koz +260koz Jan 2016 Aug 2017 ETF stocks Other stocks Balanced (140) (10) (480) E 2018E 14 Source: Company data

15 NN Palladium Supply Jewellery Program is Suspended 15

16 Palladium Has Everything to Become a Widely-used Jewellery Metal Palladium has distinctively strong physical/consumer characteristics as a jewellery material: Established hallmarking Hypoallergenic No lose of whiteness in everyday wear Stronger than gold Easy handling Easy and quickly removable surface wear Lower density Nornickel s Palladium Jewellery project was suspended due to: Share of metals used in jewellery, % Range in the last 20 years 50-60% 30-50% 2-20% 58% 35% 2% The Palladium market has experienced a structural shift since the Jewelry project was initiated deficit has become evident, the Pd price is at a premium to Platinum Au Pt Pd Taking into account the evident market deficits, Nornickel has decided to fully focus on supplying to the existing customer base The Project may be relaunched in case of the appropriate market environment Non-jewellery Jewellery 16 Source: Company estimates

17 17 Thank you!