Russia Palladium Stockpiles May Be Over, Norilsk Says (Update1)

May 19 (Bloomberg) -- Russia, the world’s biggest palladium producer, may have exhausted state inventories of the metal, removing a key source of global supply, according to OAO GMK Norilsk Nickel.

Sales from state stockpiles reached 960,000 ounces last year, the third-biggest contributor to world supply after mine output from South Africa and Russia, according to Johnson Matthey Plc. The scale of the government’s stockpiles of the metal used in auto catalysts, electronics and jewelry are a state secret. Norilsk is the world’s biggest producer.

“Judging by indirect indicators, we suppose that the government stockpiles of palladium are gone,” Norilsk’s Deputy Chief Executive Officer Viktor Sprogis said in an interview in London yesterday. “Thus we, as well as other major platinum- group metal producers, think this factor will no longer affect the market. But as this kind of information is classified, we can’t say it with certainty.”

Palladium prices more than doubled last year as investors anticipated that a rebounding global economy would bolster demand for cars and consumer goods. Prices rose as much as another 39 percent this year as a new exchange-traded fund backed by the metal was started in the U.S. in January.

Sales from Russian government stockpiles helped ease the “fundamental deficit” in the palladium market in the last two years, Johnson Matthey said in a report last week. The metal may reach $700 an ounce within six months, the supplier of one in three auto catalysts ever made said. Palladium for immediate delivery traded at $476.33 an ounce as of 12:56 p.m. in London.

Palladium Stockpiles

The Russian government stopped selling palladium stocks last year, Norilsk told investors at a presentation in London yesterday. It expects global demand to reach 7.5 million ounces this year, exceeding supply by 1 million ounces. The company mines palladium in Russia and controls Stillwater Mining Co., the only U.S. producer of both palladium and platinum.

Norilsk produced 2.81 million ounces of palladium last year. Global supply was 7.1 million ounces, according to London- based Johnson Matthey.

To contact the reporters on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net,