UPDATE 1-Nornickel 2017 net profit fell more than expected

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MOSCOW, March 6 (Reuters) - Russia's Norilsk Nickel reported a 16 percent drop in 2017 net profit on Tuesday due to a smaller foreign exchange gain, but was optimistic about prospects for its largest revenue generator palladium, saying a market deficit could widen.

Norilsk Nickel (Nornickel) is the world's top palladium producer. It also vies with Brazilian miner Vale SA to be the world's largest nickel producer.

Its net profit fell to $2.1 billion last year, missing analysts' average estimate of $2.4 billion in a Reuters poll.

Its shares were down 3 percent in Moscow, compared with a 0.1 percent fall in the broader MICEX index.

Nornickel's earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 2 percent to $4.0 billion last year due to higher prices for its metals, but that also missed the forecast of $4.2 billion.

The company said EBITDA was held back by a number of factors, including a one-off increase in social related expenses and the accumulation of palladium stock to deliver under 2018 contracts.

It got 28 percent of its 2017 revenue from sales of palladium, while nickel and copper contributed 27 percent each.

The company said the global market deficit for palladium would widen in 2018 on the back of continuing demand growth from the automotive sector and a lack of new primary supply.

For 2018, it forecast palladium consumption would increase to 11.1 million troy ounces, with a market apparent deficit widening to 1.2 million ounces excluding investment demand and stocks movement. (Reporting by Polina Devitt and Anastasia Lyrchikova; Editing by Katya Golubkova and Mark Potter)