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Mark Anthony, is an IT professional and who had a scientific research background before joining the information revolution. Visit his blog: Stockology (http://stockology.blogspot.com/)
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  • Norilsk Nickel Metals Production Projection for 2010 13 comments
    Jan 31, 2010 6:14 AM | about stocks: SWC, PAL, NILSY, IMPUY, AGPPY
    Russia's Norilsk Nickel Mine (NILSY.PK) is the world's largest nickel mine, with its by-product palladium account for 45% of the world’s mine production.
     
    Recent termination of Russian government palladium stockpile sale, due to depletion of the stockpile, is just one of the reasons why palladium has extremely bullish supply/demand fundamentals, and why palladium performed the best among all four precious metals in 2009.
     
    Reduction of palladium production from Norilsk Mine could further restraint the supply, and may prompt major industry users to panic hoard like in 2000/2001.
     
    One must correctly project Norilsk Nickel's 2010 metals production, to have an accurate picture of global platinum and palladium supply/demand outlook for 2010.
     
    Norilsk's Russian operation has two divisions, the Polar Division, which produces platinum and palladium as by-products, and the Kola Division, which contains only nickel and copper.
     
    The Polar Division proven reserve mineral ore contents are as following:
     
    Ore Type
    Ni (%)
     
    Cu (%)
     
    Pt (g/ton)
     
    Pd (g/ton)
     
    Cu/Ni Ratio
    Rich
    2.86%
    3.98%
    1.49
    7.04
    1.392
    Cuprous
    1.13%
    4.58%
    2.57
    10.80
    4.053
    Disseminated
    0.49%
    0.89%
    1.45
    3.97
    1.816
     
     
    There are mainly two types of ores, as disseminated is insignificant:
    1. Rich type, which is rich in nickel but poor in copper, platinum and palladium content.
    2. Cuprous type, the opposite, poor in nickel, but rich in copper, platinum and palladium.
    In the past I pointed out that Norilsk was switching to the rich nickel ore to cut cost and increase nickel revenue, or simply due to the geology structure of the ore body being mined.
     
    The effect of the production switch is that for the same amount of nickel, much less copper, platinum and palladium will be produced, as I predicted.
     
    The data in the past two years and Norilsk’s own projection for 2010 have confirmed my prediction. The ore type switch can be closely monitored by looking at the Copper/Nickel production ratio and see how it changes over time.
     
    Here are the Norilsk Nickel Russian production (Polar + Kola Divisions) over the years, plus 2010 projections:
     
    Year
    Ni (tons)
    Cu (tons)
    Pt (troy oz)
    ±%
    Pd (troy oz)
    ±%
    Cu/Ni
    2005
    243,000
    427,000
    751,000
     
    3,133,000
     
    1.757
    2006
    244,000
    425,000
    752,000
    +0.13%
    3,164,000
    +0.99%
    1.742
    2007
    234,454
    404,465
    727,000
    -3.32%
    3,049,000
    -3.63%
    1.725
    2008
    232,302
    400,338
    632,000
    -13.1%
    2,702,000
    -11.4%
    1,723
    2009
    232,813
    382,443
    636,000
    +0.63%
    2,676,000
    -0.96%
    1.643
    2010*
    234,000
    363,000
    655,000
    +2.99%
    2,715,000
    +1.46%
    1.551
    We are interested in palladium, so we want to see only the productions of the Polar Division. After subtracting the Kola Division, here are the numbers for the Polar Division:
     
    Year
    Ni (tons)
    Cu (tons)
    Pt (troy oz)
    ±%
    Pd (troy oz)
    ±%
    Cu/Ni
    2005
    123,000
    361,000
    751,000
     
    3,133,000
     
    2.935
    2006
    122,000
    351,000
    752,000
    +0.13%
    3,164,000
    +0.99%
    2.877
    2007
    119,000
    338,000
    727,000
    -3.32%
    3,049,000
    -3.63%
    2.840
    2008
    122,000
    339,000
    632,000
    -13.1%
    2,702,000
    -11.4%
    2.779
    2009
    122,813
    321,443
    636,000
    +0.63%
    2,676,000
    -0.96%
    2.617
    2010*
    124,000
    302,000
    655,000
    +2.99%
    2,715,000
    +1.46%
    2.435
    As shown in the chart, nickel production is maintained pretty flat over the years. However the copper/nickel ratio consistently dropped. The drop of the Cu/Ni ratio accelerated since 2008 and continues to go significantly down in 2010 projections.
     
    As a result, I predict Norilsk’s palladium production in 2010 will not raise slightly as projected by Norilsk Nickel itself, but rather should continue to drop significantly from 2009 level, commensurate with the drop of copper/nickel production ratio.
     
    I am predicting a palladium production level at 2.55M ounces for 2010, and platinum at 600K ounces level.
     
    Is it ridiculous that people should believe my prediction, rather than Norilsk’s own prediction? From early 2008 on, based on my observation of the ore type switch, I insisted on my prediction of Norilsk palladium production at 2.7M level for 2008.

    But Norilsk re-iterated, in its Q1 production release, that it’s on target to reach 2008 palladium production level at 3.02M to 3.07M ounces. In the Q2, 2008 report they still insisted that previous full year projections were unchanged. In Q3 they did not revise annual guidance either. When the final result of 2008 came out to be 2.7M ounces, I was right, Norilsk Nickel was wrong. Why would they insist on a wrong and overly optimistic guidance, is beyond me.
     
    The bullish case of the global palladium market now looks even better.

    Investors in the world’s only primary palladium producers, Stillwater Mining (SWC) and North American Palladium (PAL), will stands to profit from the expected palladium price surge in 2010.

    After falling for a continuous 8 days for a healthy correction from recent high, it’s now time to buy back these two stocks, SWC and PAL.
     
    Data sources:

    Full Disclosure: The author hoards physical precious metal palladium, and hold large positions in SWC and PAL. 95% of my 401K account is in SWC and PAL. 
     


    Disclosure: The author hoards physical precious metal palladium, and hold large positions in SWC and PAL. 95% of my 401K account is in SWC and PAL.
    Stocks: SWC, PAL, NILSY, IMPUY, AGPPY
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Comments (13)
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  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark, I agree with all your analysis on palladium. The demand/supply of this metal looks very promising for a sudden price surging in the near future. Like what we just saw in Dec, 2009.

     

    However, I still need to point out that the greatest bear market in stocks is probably near our doorstep and will set its way out in this summer. Palladium price may also be beaten down by this downturn. So also keep an eye on this.
    31 Jan 2010, 08:01 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
     
    Author’s reply » Physicist:

     

    I know almost every one now predicts there will be another round of general market downturn worse than the August, 08 to March, 2009 collapse. When every one bets something happening you better look at another possibilities. It takes another incredible surge of the US dollar to force such a collapse. Is the US dollar fundamentally sound to warrant another huge surge up? Or is the dollar finally on its last leg as the last straw finally crashes the camel?

     

    More over, in 2000/2001, palladium defied the general bear market of gold and silver, and the general bear market of commodities, and hit an all time high due the the rumor about Russian palladium stockpile sale. So it has its own fundamentals besides being a precious metal.

     

    Just like Smooth_J said, when idustrial users need to buy in a panic, they need to pay whatever price to buy to continue the production, regardless how market speculators do. If you want to speculate and short palladium at that time just because gold is hit, knowing full well there is a industry shortage of palladium, be my guest and be fried.

     

    FORD managed to turn a profitable 2009 year. So there is pent up demand. People, after waited one year, finally find that they still need a car for their lifes, and their old cars keep costing them too much repair money to be worth keep.
    31 Jan 2010, 02:52 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark,

     

    I really think you need to think twice on this. The palladium has almost finished its bull run and is about to go down significantly. Your fundamental analysis is quite useful, however, we are on the verge of a big deflation and palladium price will not be an exception. You will soon find a huge collapse in palladium price. So, it is better to sell all your PAL and SWC to lock in profit now.

     

    I agree with you that hyperinflation might come in the future, however, right now, the deflation force is still very strong and will be dominant maybe in a few years. So think about it and do what you should do now.

     

    I know you have sold all your silver to buy palladium. It is a brilliant idea to do that when palladium is at its lowest point. But now, it is time to realize your profit.
    28 Apr 2010, 08:33 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
     
    Author’s reply » I disagree. Palladium experience the worst 2 day plummet of 12 years in recent week. But it is still just a healthy correction and does not change the bullish supply/demand fundamental. The huge plummet merely reflect extreme volatility, whcih is a sign of increased investment interest in this metal. Any boost of investment interest is a hugely bullish factor, as investment demand boosts the total physical demand. Volatility is an inevitable phenomenum when a large amount of investment money is chasing a relatively small market, in this case, the narrowly traded physical palladium spot market.

     

    Volatility goes both ways, we will see extreme drops and extreme rallies. It hurt me temporarily but I celebrate such extreme volatility because it makes industrial users pause and pay attention when the palladium price display such extreme swings. A natural response of all industrial players is to increase their HOARD of strategic inventory of the physical to absorb the shock of price swings. This need to hoard adds to the totally current consumption and boost net demand significantly, therefore is extremely bullish for palladium price in the long term.

     

    Is an industrial user panic on palladium looming, like in 2000/2001?
    27 May 2010, 09:26 AM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark,

     

    If you followed my suggestion on April 28th, you would have saved up big money. As I have predicted palladium price went down significantly to a level at about $414.00/ounce. I will further predict that $475.00/ounce is a strong resistance for palladium. After that it will fell to $325.00/ounce. I think now palladium has reached the resistance level for this bounce back, next step will be another huge collapse.

     

    You can still sell your SWC, PALL, PAL to avoid being hammered by this downturn. Mark, get moved before it's too late. As a friend, I followed and read your articles for almost a year and I agreed on many of your opinions, however, it may not be correct to remain bullish on something when the trend has changed. Think about it for twice.
    31 May 2010, 05:40 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5202) | Send Message
     
    MA: Thanks for sharing this. I'm long too, but expect a further drop in prices as the pm sector is dragged down as a whole, at least temporarily.
    31 Jan 2010, 08:02 AM Reply Like
  • Sm00th_J
    , contributor
    Comments (18) | Send Message
     
    if car production continues to increase nothing can stop the price spike on physical. old cars used on av. 2 grams per cat. conv.
    newer higher emission restricted vehicles average 4 grams per cat.
    demand must be met. china cant build cars fast enough. if only the rest of the world can be in a similiar situation the outcome looks good for investors.

     

    o btw i mention this because 50% of all palladium use is in automobile emission control devices (catalytic converters)

     

    so lets hope detroit starts selling again.
    31 Jan 2010, 09:34 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
     
    Author’s reply » Don't forget. Besides SWC, PAL and physical metal, there is also a PALL, an ETF fund backed by physical palladium, that you can buy.

     

    Unlike SLV, the silver ETF fund, whose trade over the year just seem never had any positive effect on spot silver price. he launch of PALL recently had a very powerful positive effect on the spot price of palladium. So I think PALL is for real and it is bidding up physical palladium price.
    31 Jan 2010, 04:03 PM Reply Like
  • dieuwer
    , contributor
    Comments (2931) | Send Message
     
    Marc, did you know that there now are more than 10 different gold ETFs in the world, compared to a few years ago when only GLD was around?
    You wonder where all these gold ETFs "suddenly" got their bullion from. And they all claim to hold "tons" of gold. Something is not right...
    31 Jan 2010, 05:23 PM Reply Like
  • robert miers
    , contributor
    Comments (2) | Send Message
     
    I continued to be intrigued that plaladium can be used as a storage metal for hydrogen. I understand it can hold 500 times it's weight in hydrogen.
    If cold fusion is ever perfected, is it not possible for this stuff to be worth more than perfect diamonds???
    Chemical expert opinions please
    thanx ahead
    bob
    1 Feb 2010, 05:19 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
     
    Author’s reply » Robert:

     

    Yes I am a big advocator for Cold Fusion and for palladium investment. Last year CBS 60 Minutes aired a program on April 19, 2009. Read my blog article and follow the link to watch it:
    stockology.blogspot.co...

     

    If Cold Fusion becomes a commercial reality, as you said, palladium will become extremely expensive. Palladium investment will be the best investment I could ever find in my lifetime.

     

    I am hoping, not just for my own material well being, but for the well being of the whole humanity, that Cold Fusion becomes a commercial reality. Cold Fusion is the only thing that can provide us virtually unlimited new energy source, after the world's fossil fuels are depleted. Have you read about Peak Oil?
    1 Feb 2010, 05:57 PM Reply Like
  • alexmills66
    , contributor
    Comments (7) | Send Message
     
    Been following your views and you have been correct so far!
    Well done! I should have bought SWC at 7 dollars or so last fall, but it could go much higher from here?- rhetorical question.
    Any other stocks out there that would give one broad exposure to the precious metals, I guess an ETF would be the "safest". Any European ETF's that look worth buying today? I am closely tied to the FTSE and UK where my pension funds reside.
    Alex in Norway.
    18 Apr 2010, 04:17 AM Reply Like
  • alexmills66
    , contributor
    Comments (7) | Send Message
     
    Pre-retirement Scottish Doctor, working in Norway, very keen to make the correct investment decisions as "retirement " will offer so many other life opportunities..., especially here!
    18 Apr 2010, 04:23 AM Reply Like
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