President Putin and the palladium plot
Source: Journal of Commerce
In some people's minds, power and money have the same effect. They create conspiracies to get more, to protect against raids, and to deprive others of power and money. The facts of life make politicians and speculators natural conspirators.
In London and New York last week, the evidence of a conspiracy to drive up the spot-market price of palladium was so obvious that it has led to a new question: Is acting President Vladimir Putin one of the conspirators, along with the Central Bank of Russia, the state stockpile agency Gokhran, the Ministry of Finance, the Russian palladium trader Almazjuvelirexport, the miner Norilsk Nickel, and its owner Rosbank?
Putin's role in the conspiracy, according to the market rumor, is to deliberately withhold his signature from the presidential decree authorizing this year's quota of palladium exports. His signature is necessary before export licenses can be issued, and deliveries of the Russian metal start.
Government officials have been saying since last year that this time there would be none of the delay that has affected this process in past years. In 1999, Russian exports didn't start until late April.
The same officials have been saying the approvals required for the quota decree have been issued by the ministries for weeks now. They keep claiming there is no obstacle to the signing.
But the signing hasn't happened. Yury Kotlyar, a senior executive of Norilsk Nickel, claimed there was a conspiracy of a sort, but he called it bureaucratic ineptitude, compounded by election-season distractions. A conspiracy of stupidity, not cupidity.
Kotlyar's view is understandable. His company is the world's largest producer of palladium, and this year's turmoil damages Norilsk Nickel's reputation as a reliable supplier.
Worse, when palladium reaches $800 on the spot market, and there is no metal to be found, U.S. and Japanese car manufacturers are forced to accelerate research to develop a palladium substitute for their catalytic converters. And that will hardly help the outlook for the metal Kotlyar mines.
The world supply of palladium is very limited, and almost all of it comes from Russia and South Africa. Kotlyar said Moscow has been playing into the hands of the South African producers, more than doubling the price they are earning on their sales this year.
But there's more to the story than that.
In London and New York, it is rumored that the Central Bank has been conspiring with a well-known trading company to ensure that Putin doesn't sign, that Russian deliveries are postponed and that certain speculators will stand to benefit.What makes this credible is that the Central Bank is such a dishonest organization. That opinion in the international markets is reinforced by the findings of the Russian state auditor, the Accounting Chamber.
A year ago, the Central Bank conducted a series of transactions known as swaps, in which at least 32 tons of palladium were transferred to European bank vaults as collateral for loans the Central Bank may, or may not, have intended to repay.
The metal was hidden from the State Duma, which had voted to ban such transactions altogether in December 1998. The deal was revealed when it appeared in Swiss import statistics, apparently when a transfer from vault to vault crossed the German-Swiss border.
It is thus conceivable that the Central Bank is secretly doing the same thing again -- although legally it should not be exporting palladium unless and until Putin signs his decree.
Russian commercial bankers are just as ready to believe the Central Bank is engaged in the palladium conspiracy as the London and New York traders are. The Russians say openly that the Central Bank is acting not as a state organization, but as a purely commercial one.
From an audit of personnel and payroll records in 1998, it is known that Central Bank officers make money for their own pockets when they execute transactions like these.
With a huge stockpile of palladium on its hands -- the estimates range between 300 and 600 tons -- the Central Bank can be expected to extract as much liquidity from the metal as it can. That means cash.
It cannot supply the spot market unless the rest of the government agrees. The others, including Norilsk Nickel, won't do that, because they regard the bank as a dangerous competitor with stocks big enough to destroy price stability.
If the Central Bank has found a German or Swiss bank to take palladium for a cash loan, then the value of the deal depends on how high the spot-market price can be jacked up. If the speculation drives palladium to $800 per ounce, double the regular price, then the bank doubles its cash proceeds.
The net proceeds would amount to almost half a billion dollars. That's the profit from Putin's delay.
The longer the delay lasts, the more natural it is to suppose that Putin and bank Chairman Viktor Gerashchenko have reached an agreement to share in the profit. That's cupidity.
And Kotlyar is right about one thing: it would take a conspiracy of fools not to obtain Putin's signature after so long, with so much money at stake.
Publication date: Feb 28, 2000
¸ 1999, NewsReal, Inc.
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