Russian Palladium Reserves “Pretty Much Exhausted” As 2013 Rhymes With 1999 in Palladium

Russian palladium reserves are “pretty much exhausted” and sales this year may be only 3 metric tons, according to Johnson Matthey. In 1999, during a scare over Russia’s palladium supply, the metal ran to an unprecedented $1,200 about (a price point at which Ford bought substantial holdings in the metal) before collapsing in a multi-year consolidation period getting ready for its most recent secular-bull market. Russia is the world’s largest producer of palladium and, with palladium double its point at the start of 1999, it is likely all-time highs are on the cusp of revisit.

Here is a note on Ford’s mismanaged palladium stockpiles from 2002 in the Wall Street Journal:

DEARBORN, Mich. — Last month, Ford Motor Co. F -1.37% shocked Wall Street with a $1 billion write-off of thevalue of its stockpile of precious metals, primarily palladium. Why had the No. 2 car company made a massive bet on a commodity notorious for its price volatility?

With Russian inventory sales having dropped 68% to 250,000 ounces last year from 775,000 ounces in 2011, sales from state stockpiles are expected to range from an unprecedented “zero to several tons” in 2013, according to the deputy chief of ZAO Normetimpex, OAO GMK Norilsk Nickel’s sales arm Anton Berlin. This is essentially the same thing that happened at the turn of the 21st century.

“Maybe 3 tons this year, and that will be it,” Peter Duncan, general manager of market research at Johnson Matthey,  told London reporters on January 25. 3 tons equals 96, 452 troy ounces. “Russian state stockpiles have been dwindling and are now pretty much exhausted.”

The shrinking stockpiles from Russia come at a time when output is generally falling leading to the biggest shortage of palladium in twelve years. South African output – the world’s second largest producer of palladium – was hurt by labor disputes and strikes, while lower grades contributed to a decline in Russia.

The palladium supply itself fell 12 percent in 2012 to 6.48 million ounces due to the South African strikes. In November, Johnson Matthey conjectured that the supply would lag demand by 915,000 ounces in 2012, the biggest deficit since 1999.

The global net demand for platinum grew by 4 percent to 6.17 million ounces, off from the forecasted 6.24 million ounces and gross automotive industry demand was steady at 3 million ounces in 2012.

In 1999, palladium started the year with a price point of $335. This year, palladium is double that number, and with the dire news out of Russia, it is likely that the continuing shortage will propel palladium to a next leg. Expect more mining in the Bushveld, as well.