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30 2005 NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •200531SupplyReview of platinum market developments in 2005SupplyCopperIn 2005, metal production by main producers continued togrow, however growth rates were slower than in the previousyear. A more stable national currency rate which led toproduction cost increases and a number of accidents at leadingmining companies were the cause of the actual indicatorslagging behind forecasts in South Africa. Against the backgroundof the limited supply of warehouse palladium stockto the market, its supply reduced from 7.91 million ounces in2004 to 7.54 million ounces. At the same time, the share ofscrap metal in the market increased. Due to the reduction ofsupply and the growth of demand in some industries, theexcess surface stock of metal decreased from more than1 million to 650 thousand ounces.Average annual palladium price(US dollars per ounce)2005 2004 2003Palladium 201 230 200Source: London Platinum and Palladium MarketPalladium prices on London Platinum and PalladiumMarket in 2005(US dollars per ounce)In 2005, the platinum market had a stable high metal pricewhich gradually grew throughout the year. The maximumprice of USD 1,012 per ounce was reached on 12 December2005, after which the price never went below USD 950 perounce. The average price on the LPPM grew by 6% from2004 to USD 897 per ounce. The main reason for price growthin the fourth quarter was the speculative activities of investmentfunds supported by fundamental factors.DemandIn 2005, the demand for platinum increased by 1.8% to 6.71million ounces, due to the increased metal consumption in theautomotive, electronic, petrochemical and glass industry, whiledemand from the jewelry industry declined.The European automotive industry continued to be the leaderin the demand growth for platinum in 2005, posting a15.5% growth rate to 1,940 thousand ounces. Platinum consumptionby the automotive industry in the US declined by4% to 820 thousand ounces; in Japan it declined to 580thousand ounces (a decline of 4.1%). Overall platinum demandin the automotive industry grew by 7.2% to 3.06 millionounces, mainly due to:• increase in sales of diesel cars;• stricter emissions standards; and• expanded use of platinum in catalysts.In 2005, platinum supply grew by 2% to 6.59 million ounces,which was somewhat less than forecasted due to the reductionof production rates in South Africa. In addition, platinumproduction in North America also decreased due to the changedore composition. At the same time, demand grew by 1.8%,so the deficit in the metal market was not significantly reduced,and amounted to approximately 120 thousand ounces (ascompared to 130 thousand ounces in 2004). It is forecastedthat the market will practically be balanced by the end ofnext year.Average annual platinum price(US dollars per ounce)2005 2004 2003Platinum 897 846 692Source: London Platinum and Palladium MarketPlatinum prices on London Platinum and PalladiumMarket in 2005(US dollars per ounce)The deposit which is the basis of Norilsk Nickel's nickel andpalladium production also contains copper. The extraction ofcopper makes Norilsk Nickel Russia's largest producer of copperand a significant player in the global market.Copper is amongst the oldest metals used by mankind. In itspure state, it is easy to work copper, and it makes attractiveornaments. When combined with tin and zinc in bronzes andbrasses, it becomes harder and can be used in the manufacturingof weapons and tools.While copper continues to find uses as a result of its physicalcharacteristics – for example, in water pipes, domestic fittingsand coins – the growth in copper's use in more recenttimes has been driven by another one of its characteristics, itshigh electrical conductivity.Today, the use of copper in electrical applications accountsfor around three-quarters of its total use. Uses range fromthe production of heavy industrial cables, through regulationbuilding wire, to the fine wires used in windings for motorsand transformers.Copper end usesMMC NORILSK NICKEL NOT INCLUDINGGOLD MINING ASSETS (POLUS)Source: London Platinum and Palladium MarketThere was also a surge in consumption by the electronic industry– by 18.3% from 300 thousand to 355 thousand ouncesdue to a noticeable increase in the production of computerhard drives and portable electronic devices. The glass industrycontinued its growth which began last year, and materialinvestments in the industry provided a basis for forecasting furtherincreases of platinum consumption. In 2005, platinum consumptionincreased by 8.6% – from 290 thousand to 315thousand ounces. The same situation occurred with the oil processingindustry – plants worked at almost maximum capacitywhich led to the need of a mass replacement of catalystslast year.Source: London Platinum and Palladium Market8High platinum prices led to a further 6.5% decline in demandin the jewelry industry, to 2.02 million ounces. Platinum purchasesmade by the Chinese jewelry industry have beendecreasing for the third year in a row; in 2005 they decreasedby 10% to 910 thousand ounces.Source: Brook Hunt, 2005Each year brings with it new electrical and electronic products,meaning that the amount of wiring required in homes andoffices keeps going up. Similarly, as cars acquire ever moredevices and accessories, more and more copper is needed intheir wiring harnesses. Since 1990, global demand for copperhas increased at almost 3.5% a year.