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17 november 2023

Some of the clients of Norilsk Nickel, who refused to purchase the company's metals earlier, now come and discuss the return and contracts for 2024, according to the company's director for contacts with the investment community Mikhail Borovikov cited by INTERFAX.

"The situation is becoming less confrontational and tough," he said.

Returning customers

The European Union, the largest metal consumption region of Norilsk Nickel in the past, now accounts for a quarter of all sales of Norilsk Nickel, the share of Asia has grown from 25% to half, sales to North America have remained at the same level and supplies to Russia and the CIS have slightly increased, Borovikov said.

At the same time, the drop in demand in Europe is caused not only by "self-sanctions" (voluntary refusals of consumers of Russian products that are not under sanctions), but also by a reduction in metal consumption in this region.

Norilsk Nickel does not provide discounts to customers, the representative of the company stressed: "There are no big discounts on our metals that stand at 5% or 10% [maximum], however, there are no premiums [either]," he noted. Currencies of trade have not undergone significant changes, he added.

Borovikov also repeated that in the first half of this year Norilsk Nickel managed to reverse the trend of working capital growth, which was formed in 2022 due to the lengthening of transport chains and the accumulation of finished products.

The market will switch to restocking in 2024

The trend of destocking (decrease in the level of stocks) in the metal market, as Norilsk Nickel expects, will be replaced by a trend for restocking next year.

Destocking, which took place in the second half of 2022 and in 2023, was caused by disappointment in the growth rate of demand after the removal of Covid-19 restrictions. It affected the markets of all non-ferrous metals, including copper and zinc, and some precious metals. The process was also exacerbated by the opening of short positions by hedge funds.

"The trend towards destocking should stop next year. All those stocks that could be sold, they are by and large sold. Stocks on the LME are at historic lows and outflow continues from there...and we will move from destocking to restocking when they begin to replenish stocks," the representative of Norilsk Nickel expects.

Palladium

At the same time, while prices are lower, the operating costs of producers were constantly growing, said Borovikov. This is especially true of palladium, the outlook for which has suffered against the background of the spread of electric vehicles. For example, the US-based Stillwater has a negative cash flow with the price of palladium of $1,000 per ounce. In South Africa, at current prices for PGMs, about 20% of assets are unprofitable.

Another factor affecting the supply is a sharp decrease (of 30%) in the production of precious metals from scrap this year, which accounted for about 20% of production.

Borovikov compared the situation in the palladium market with expectations of falling demand for coal. "Everyone loves to "bury" palladium. I remember how in 2018 everyone also "buried" coal. Well, where are those people who shorted Mechel and Raspadskaya?," he noted. "We think that next year many industrial consumers will start replenishing palladium reserves."

Nickel

Nickel demand may benefit from depletion of nickel ore in Indonesia, Borovikov noted. In addition, the authorities of Indonesia, the largest nickel producer, announced the introduction of marginal minimum prices for ore and nickel pig iron (NPI) in order to leave more value inside the country and reduce the discount for Chinese buyers.

"These trends should have a positive impact on nickel in the medium term, in addition to the fact that demand remains at a very good level," said a representative of Norilsk Nickel.

Production and САРЕХ

Borovikov noted that the modernization of the furnace announced by the company earlier at the Nadezhdinsky Metallurgical Plant will negatively affect the volume of production in 2024.

The company's capital investments (CAPEX) in dollar terms decreased due to the devaluation of the ruble. Currently, on average, Norilsk Nickel expects to invest $3.5 billion and less per year over the next few years, instead of $4 billion previously.

In light of the possible closure of Western markets, Norilsk Nickel is considering downstream projects within Russia. In addition to the joint venture with Rosatom for the development of the lithium Kolmozersky deposit, the company is also considering a project with a large Russian metallurgical company, Borovikov said, without giving details.

Norilsk Nickel retains plans to spin off its Bystrinsky copper-gold mine, but now the deal is not relevant, Borovikov said.

Alex Shishlo for Rough&Polished