SA mines lose ground to Russian rivals on key strategic metal

Palladium crystals. Photo: Wikimedia Commons
Palladium crystals. Photo: Wikimedia Commons


South Africa’s mining companies are losing ground to Russian rivals due to the country’s harsh Covid-19 lockdown regulations, with some analysts claiming that it would take six to seven years for the country’s palladium output to recover.

As the Covid-19 coronavirus pandemic pummeled demand from key customers in the vehicle manufacturing industry, Russia’s biggest mining company quietly tightened its grip on the palladium market.

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MMC Norilsk Nickel PJSC (Nornickel) was already the number one miner of the metal used in autocatalysts, but the crisis has allowed it to gain market share. That’s because Nornickel’s Russian operations have barely missed a beat, while its main rivals in South Africa are struggling to ramp up production after shuttering mines due to the coronavirus lockdown.

Some high-cost miners in South Africa, where palladium is produced as a byproduct of platinum mining, are losing money

“Norilsk Nickel has always been considered as the last company to die,” said Artem Bagdasaryan, an analyst at BCS Global Markets. “The pandemic only highlights it.”

Nornickel, whose shallower operations make it the industry’s lowest-cost producer, has so far maintained its palladium output guidance for this year, a spokesperson said. The miner on April 30 reiterated its 2.6 million to 2.8 million ounces guidance, which was originally issued in January, before the pandemic was declared.

By contrast, top South African miners such as Anglo American Platinum and Impala Platinum Holdings have cut their production targets, while Sibanye Stillwater has suspended its forecasts.

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Some high-cost miners in South Africa, where palladium is produced as a byproduct of platinum mining, are losing money, according to Citigroup.

Nornickel expects global palladium output to drop by 1.3 million ounces this year to about 6.3 million ounces. Still, the market will swing from a large deficit to a balanced position as demand for vehicles slumps, the Russian company said.

Shortfalls will start to emerge again early next year, according to Nornickel.

With South African miners scaling back on new projects, it may take six to seven years for the nation’s palladium output to recover, according to Rene Hochreiter, analyst at Noah Capital Markets.

Nornickel has maintained capital spending, even as the company offers to pay about $150 million (about R2.6 billion) for the clean-up of a massive fuel spill in Siberia at the end of May. That will leave the Russian company better positioned for a rebound in palladium demand.

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“To have larger market share is always a good thing,” Boris Krasnojenov, chief of research at Alfa Bank, said by phone.

“It is hard yet to say if Norilsk Nickel will be able to get any material benefit as a lot depends on how the pandemic will develop.” – Bloomberg


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