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. Last Updated: 07/27/2016

Bureaucracy Hits Norilsk, Palladium Prices Soar




World palladium and platinum prices shot up Wednesday after Russia's Norilsk Nickel warned that it may not be able to export either metal in the first quarter of 1999.


The warning from Norilsk Nickel - about government delays in setting export quotas for the platinum group metals, or PGM - helped push palladium nearly $11 higher at $284 to $289 in late afternoon trade, Reuters reported.


Russian exports account for over 60 percent of the world's palladium market and up to 20 percent of the global platinum market. Both metals are widely used in electronics and car manufacturing industries.


While analysts warned that the market volatility caused by the delays could hurt the long-term prospects for both metals, Norilsk Nickel was more concerned at the short-term losses it faces.


The bureaucratic hold-up could deprive the arctic giant of much-needed hard-currency earnings from PGM exports, Norilsk Nickel warned in a statement issued Tuesday. Platinum and palladium are estimated to account for about one quarter of Norilsk's exports.


No decision on the quotas is likely before January, a senior official at the Finance Ministry was reported as saying by Interfax on Tuesday.


Russian exports of palladium and platinum have often been interrupted in recent years by the government's failure to set export quotas. These delays have usually been attributed to red tape and government stinginess with the country's strategic reserves of the rare metals.


Exports this year were only able to start in April, a delay that cost Norilsk about $100 million in lost revenues, company spokesman Anatoly Komrakov said Wednesday.


If 1999 sees a repeat of 1998's woes. Norilsk will be hit hard due to the depressed state of markets for its traditional revenue earners, including nickel, copper and cobalt. Norilsk responded to the low prices for these metals by increasing its PGM production by 10.4 percent over the past 12 months, but has been frustrated by lack of government approval for increased export quotas.


It first applied in August for an increase in the quota for the final quarter of 1998, but has been unsuccessful. Norilsk would like to see bigger export quotas for 1999 as well, Komrakov said.


Quotas for next year are likely to be set at 645,000 ounces for platinum and 3.2 million ounces for palladium, Reuters quoted a Finance Ministry official as saying two weeks ago. That would probably represent a decrease.


There is no official data on Russian PGM exports, but estimates for 1998 put Russia's exports of platinum at 850,000 ounces and palladium at 4.6 million ounces, 17 percent and 64 percent respectively of the world's primary supply, said Rhona O'Connell, metals analyst at T. Hoare & Co, a London-based natural-resources stock brokerage.


The market is heavily dependent on Russia's supplies and a hiatus in supplies will cause price volatility that may damage the market by driving away customers in the longer run, O'Connell said.


"It does not help if one of the world's major producers is not in a position to deliver consistently," she said. "The customers will look for alternatives."