Implats to benefit most from palladium surge through $3,000/oz, says Citi

NORILSK, RUSSIA - JULY 19: Metal flows throughout the day into furnaces in a copper plant July 19, 2002 in Norilsk, Russia. Workers must keep a watchful eye to prevent backups in the plant. Molten raw material is transported in huge buckets through the copper smelter. In total, Norilsk produces over 90 percent of Russia's nickel, 58 percent of copper, over 80 percent of cobalt and almost 100 percent of the platinum-group metals. (Photo by Oleg Nikishin/Getty Images)

THE price of palladium could challenge $3,000 per ounce according to a report by Citi last week which has tipped Impala Platinum (Implats) to benefit most.

“Our commodity team remains bullish on palladium and expect a major sequential recovery in global automotive production in 2022 and 2023 to benefit PGMs broadly, and palladium in particular due to its higher sensitivity to auto catalyst demand,” it said.

The palladium price has weakened 9% in the last 30 days despite Russia’s invasion of Ukraine which has resulted in sanctions, although not directly on Russian metal exports. Analysts say the political shock of the war will have long-term impact on supply lines.

Russia accounts for about 38% (2.7 million oz) of total palladium supply. Palladium is currently trading at about $2,269.50/oz.

Citi said that “… in light of the current geopolitical conflict issues transporting palladium out of Russia are restricting the flow of the metal and we think could drive prices up to $3,000/t in the near term”.

The bank said shares in Implats had been penalised more than its peers – down about 20% at the time of the report’s publication on March 16. Since then, shares in the company have edged down a further 2.8%.

Implats had net cash of R17.5bn as of end-December and was likely to generate R56bn cumulative free cash flow over its 2022 and 2023 financial years, equal to about 30% of its current market capitalisation, said Citi.

An important catalyst for Implats this year was the possibility of further community disruption identified by the company’s management as one of the reasons for the year-on- year decline in platinum group metal production in financial 2022.

Implats said earlier this month that group refined output would be between 3.1 and 3.2 million (6E) oz. It previously guided to output of 3.2 to 3.5 million oz (6E).

Other catalysts were progress with the expansion of Anglo American Platinum’s Mogalakwena mine, which would have a bearing on the supply demand balance, and the progress of Implats’ takeover bid for Royal Bafokeng Platinum (RBPlat).

Implats said on March 18 that it had increased its holding in RBPlat to 36.41% in terms of a mandatory offer launched in January in which it offered R90 per share in cash and 0.30 of an Implats share. It is hoping to secure more than 50% of RBPlat.

The mandatory offer for RBPlat closes on June 17.