We anticipate that the copper market will remain generally balanced in the near term, running a deficit of less than 1% of the global consumption (or 282 kt) as the global economy recovers from coronavirus.

Manufacturing activity seems to have adapted to the new normal and is expected to be uninterrupted by the new waves of the pandemics, provided end-use demand remains solid and no other supply chain-related disruptions emerge. In our view, global copper demand will increase 3% to 24.2 mln tonnes in 2021. Copper substitution with aluminium may also partially reduce copper demand in the most price-elastic applications.

The COVID-19 related production disruptions and strikes in Latin America may still affect global copper output in 2021, which we expect should result in practically no changes in global output, forecasted at approximately 24 mln tonnes.

We expect a moderate market surplus of 319 kt (less than 1% of total consumption) in 2022 as three new projects will deliver additional volumes: Spence in Chile, Mina Justa in Peru and Kamoa-Kakula in Congo.

In the longer run, copper demand will be driven by copper-intensive renewable energy capacities expansion and transport electrification, including power station network development and power grid upgrades, which may shift the market into deficit subject to no adequate supply response.

Palladium in 1H2021: price reached its new historic high of nearly USD 3,000 per troy ounce on the back of recovery in the automotive sector and supply concerns caused by mines and a concentrator suspension at Norilsk Nickel; palladium-to-platinum substitution is still very limited and not impacting the demand.

Early in the year palladium was trading within the range of USD 2,300-2,500 per troy ounce, then started to rally in the middle of March reaching its new record high of USD 2,994 per troy ounce in early May. Such a strong performance was mainly driven by accelerating recovery of global car production and further tightening of the emission regulations around the globe, pushing PGM loadings per vehicle higher. Production losses at Norilsk Nickel amplified the positive momentum as market participants worried about the potential physical tightness of supply. In May-June, the palladium price fluctuated within the range of USD 2,500-2,900 per troy ounce.

The average palladium price in 1H2021 increased 21% y-o-y to USD 2,592 per troy ounce.

In 1H2021, global automotive sales grew by 33% y-o-y to 42 mln vehicles (though still 7% lower than in 1H2019), with the automotive markets of China and the USA returning to pre-COVID levels. The full recovery in automotive sector was crippled by chip shortage that resulted in a production loss of approximately 2 mln vehicles (circa 200 koz of palladium demand).

The suspension of operations in Norilsk unnerved the market sentiment, but did not have a material impact on the market balance as South Africa recovered from the COVID-related disruptions and started releasing the work-in-progress material accumulated due to technical issues with converters in 2020.

Palladium outlook: positive; the market is expected to run a 0.9 moz deficit this year; auto industry is showing healthy recovery driving the palladium demand up 15% y-o-y; supply to grow by 8% y-o-y as supply losses in Russia will be offset by higher refined metal output in Africa and by growing number of metal units coming from recycling.

In 2021, we expect industrial palladium consumption to increase 14% y-o-y to 10.9 moz as end-use demand recovers after the period of strict COVID-related restrictions of 2020. The automotive industry will be the main driver of growth, with other areas of palladium consumption growing at a rate varying from 5% (electronics) to 12% (chemical industry).

Global primary refined palladium output is anticipated to increase 5% to 6.5 moz in 2021, backed by the recovery of South African operations to their full capacity and the release of accumulated work-in-progress inventory. A strong rebound in PGMs' autocatalyst recycling volumes is also expected, with more old vehicles scrapped as the new vehicles' sales resume after the pandemic. Palladium recovery from spent catalysts and other secondary supply sources is forecasted to increase 14% to 3.6 moz in 2021.

As the negative effect of chip shortage fades away and supply from Russia decreases in 2H21 (owing to a long lead time from mine to refined PGMs, with mine suspensions in 1H21 impacting negatively 2H21 refined PGM output), we expect a 0.9 moz deficit for the full year 2021.

In 2022, we expect the global light-vehicle sales to recover to over 92 mln units (up 7% y-o-y) from 86 mln units in 2021. Palladium mine production will recover to the pre-COVID levels, and secondary supply is expected to set another record high with a double-digit growth due to higher number of vehicles hitting scrapyards and higher palladium loadings per recycled vehicle. However, the increase in supply is not going to be sufficient to fully balance the market and we expect palladium market in 2022 to run a 0.7 moz deficit.

Platinum in 1H2021: market remained oversupplied as refined metal production went up at a higher pace than demand; after reaching a 6-year high, the price consolidated between USD 1,000 and 1,100 per troy ounce as investors' interest faded.

Having started to rally at the beginning of the year, platinum price reached a 6-year record high of above USD 1,300 per troy ounce in mid-February. After that, a correction was witnessed, with the price drifting down towards USD 1,000-1,100 per troy ounce. In our opinion, these price movements should be attributed more to speculative actions rather than fundamental reasons. In 1Q2021, NYMEX registered a significant increase in open interest (+12% q-o-q), average trading volumes (+20% q-o-q) and the number of speculative positions (+13% q-o-q), all of which reduced drastically in the second quarter. The investors' interest in platinum was heated up by the widespread attention to ESG matters and expectations of accelerated expansion of renewable energy generation and hydrogen economy, in particular.

In 1H2021, the average LPPM platinum price increased 38% y-o-y to USD 1,170 per troy ounce

The ETF inflow in 1H2021 reduced from 2H2020 to 125 koz from 500 koz as elevated price levels reduced investors' appetite.

In 1H2021, platinum offtake by most industries increased significantly against the backdrop of the general revival of economic activity. In spite of the continuing decline in diesel share on the European market, metal consumption in the automotive sector is expected to grow this year by 20%, primarily because of the introduction of China V regulation that implies a three-time increase in platinum loadings per heavy-duty truck in the country. Positive changes are seen in jewellery, electronics, glass and medical sectors.

In 1H2021, global primary refined platinum production recovered rapidly as South African producers went back to normal operations, and the work-in-progress material accumulated in 2020 was released to the market.

Platinum outlook - neutral; the recovery in automotive, jewellery and other industries will lag behind the supply expansion moving the market to a 1 moz surplus this year, with a part of this surplus absorbed by investment demand.

We forecast that platinum demand (excl. investments) will grow by 9% to 7 moz in 2021, predominantly on the back of general automotive market recovery and higher metal use in trucks in China. Mine supply is expected to grow by 25% to 6.1 moz as South African mining companies release work-in-progress material accumulated in 2020. Secondary supply from recycling is anticipated to increase by 11% y-o-y to 1.9 moz as scrapyards return to full capacity after a period of limited activity during the pandemics.

In 2022, the platinum market surplus should reduce to 0.7 moz, in our opinion, as automotive and jewellery demand recovery continues and the pace of supply growth gets slower.

According to our assessment, palladium substitution with platinum, albeit being actively communicated to the public by some industry participants, has not been widely implemented yet. We consider this as a long-term opportunity. The future of platinum demand strongly depends on the prospects of the hydrogen economy.

KEY SEGMENTAL HIGHLIGHTS1

USD million (unless stated otherwise) 1H2021 1H2020 Change,%

Revenue 8,943 6,711 33%

GMK Group 4,632 6,080 (24%)

South cluster 384 311 23%

KGMK Group 5,054 4,015 26%

NN Harjavalta 809 599 35%

GRK Bystrinskoye 699 421 66%

Other mining 31 39 (21%)

Other non-metallurgical 1,000 719 39%

Eliminations (3,666) (5,473) (33%)

EBITDA 5,700 1,838 3x

GMK Group 2,567 2,003 28%

South cluster 217 176 23%

KGMK Group 2,302 424 5x

NN Harjavalta 60 59 2%

GRK Bystrinskoye 566 277 2x

Other mining (9) (34) (74%)

Other non-metallurgical 7 (3) n.a.

Eliminations 405 (678) n.a.

Unallocated (415) (386) 8%

EBITDA margin 64% 27% 37 p.p.

GMK Group 55% 33% 22 p.p.

South cluster 57% 57% 0 p.p.

KGMK Group 46% 11% 35 p.p.

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August 05, 2021 07:30 ET (11:30 GMT)