Russia-based Nornickel, the world’s largest producer of palladium and high-grade nickel and a major producer of platinum and copper, presented its eleventh review of the nickel and platinum group metals (PGM) markets based on the fundamental analysis of world economic and industry data.

Nickel. In early 2023, nickel has been the worst performer among base metals on the London Metal Exchange (LME). This was caused not only by a 45% price increase in 2022 and a subsequent correction, but also by worsening market fundamentals. Despite extremely low LME nickel exchange inventories, which are currently at the 2007 level and amount to less than 5 days of global use only, the LME nickel contract was down by 30% since the beginning of the year.

This is primarily due to a significant surplus in the Class 2 market that occurred in 2022 and is expected to remain throughout 2023-2024, mainly owing to growing production of low-grade nickel in Indonesia. At the same time, robust demand for nickel in alloys and special steel sectors supports prices of the exchange-traded Class 1 nickel.

Overall, despite nickel demand growth, which has averaged 7% per annum since 2015, Indonesia is creating a supply glut and losing potential revenue by selling the country’s nickel resources at substantial discounts. While beneficial to consumers, especially battery manufacturers, the use of such nickel in the battery industry is not sustainable as it has an extremely high carbon footprint and other significant environmental impact. Ultimately, it contradicts the very concept of electric vehicles being an environmentally-friendly and climate-change-favorable type of transport, Nornickel said.

Nornickel revised its forecast for a nickel market surplus in 2023 from 110 kt to more than 200 kt, with the bulk of this coming from low-grade nickel.

The estimate for nickel demand in 2023 has been downgraded from the previously expected 3.34 Mt to 3.22 Mt (7% year-on-year growth). The revision is mainly driven by lower stainless steel production in Indonesia due to operational difficulties at one of the projects, as well as lower demand in the battery sector amid a slowdown in EV sales and higher LFP uptake.

On the other hand, the company raised its forecast of primary nickel use, first, in the stainless steel sector in China and, particularly, in Europe, where decline in 2022 production was lower than originally expected, and second, in other melting applications, due to strong demand from the aerospace, oil & gas and military sectors.

The forecast for nickel supply in 2023 is almost unchanged at 3.45 Mt (10% year-on-year growth) driven mainly by nickel pig iron (NPI) production in Indonesia and the commissioning of new nickel cathode capacities in Indonesia and China.

This development has also led to a surplus in the previously tight Class 1 nickel market, which is expected to reach approximately 40 kt in 2023.

Nornickel forecasts the nickel market to maintain a surplus of around 180 kt in 2024, with low-grade nickel still accounting for the bulk of the volume. Overall, nickel supply is likely to exceed demand in China and Indonesia in 2024, while Western markets are expected to be fairly balanced.

Nickel use remains very robust in the long run, driven by higher demand in the battery sector and renewable energy. At the same time, mass production of sodium-ion batteries for electric vehicles, also containing nickel in their cathode material, was launched in 2023, which will provide an additional source of nickel demand.

Nornickel remains the largest high-grade nickel producer with one of the lowest carbon footprints. The company said that it strongly believes that while the ESG-compliant approach to sourcing nickel will undoubtedly cause some difficulties in the short run, it will be highly beneficial both in terms of sustainability and financial performance in the long-term perspective.

Platinum Group Metals (PGM). Over the six months since the previous report, platinum group metals (PGM) prices have remained volatile against the backdrop of declining geopolitical premium, continuing macroeconomic shocks, speculative pressure, and the impact of fundamentals, such as weak ICE-powered vehicles sales recovery and South African power problems.

The automotive sector, which contributes to more than 80% of palladium use, is slowly recovering after COVID and supply chain-related shocks of 2020-2021. It will see a modest growth this year, with global passenger car sales reaching 86 million units, up 6% from the previous year. At the same time, the ICE vehicle market is expected to grow by just 3% to 76 million units in 2023, as the lion’s share of market growth comes from battery electric vehicles. Based on this forecast, Nornickel expects demand for palladium to grow by 1% this year.

Bearing in mind that the main driver of the PGM demand struggles to gain momentum this year, the risks associated with the South African primary supply and global recycling bring a downside potential for the PGM market supply.

Nornickel expects a moderate deficit in the palladium market this year. The deficit forecast for 2023 was revised to 0.2 million ounces from 0.8 million ounces due to a weaker-than-expected recovery in the car market (the forecast for global ICE vehicles production was cut by 2.5 million units) and the revision of the impact of China’s new emission rules for palladium in autocatalysts. Nornickel expects no significant year-on-year changes in palladium demand in other industrial applications this year.

In 2022 — H1 2023, palladium deficit has been offset by the use of previously accumulated metal inventories held by market participants, primarily carmakers and manufacturers of catalytic systems. At the same time, the situation is expected to change in 2H 2023, when the mass destocking is likely to end.

In 2024, if the growth of recycling resumes and outpaces demand recovery, the company expects the palladium market to become balanced.

Nornickel expects the platinum demand growth to offset the primary production recovery, leading the platinum market away from the period of surpluses to a more balanced state in both 2023 and 2024.

The diesel-powered vehicles market, which is still responsible for nearly a half of platinum demand in the automotive industry, continues to shrink, especially in Europe. At the same time, the automotive production recovery and palladium-with-platinum substitution, which, however, do not seem currently to be growing noticeably on a year-on-year basis, will add extra ounces to the demand.

With the narrowing price-spread between palladium and platinum in 2023 as well as the announcement of the new environmental regulation in Europe and the US and a more concentrated allocation of OEM’s and fabricators’ capital and R&D efforts towards transport electrification, Nornickel sees lower appetite for catalyst chemistry mix changes in the near future.

The jewellery demand is expected to stagnate this year, while the industrial demand for platinum is expected to rise slightly by +2% on the back of the capacity expansion in the chemical and glass sectors in China.