London (Platts)--13Nov2012/557 am EST/1057 GMT

The balance of the palladium market will swing this year from surplus to a deficit of 915,000 oz deficit due to lower supplies, higher gross demand and less recycling, specialist chemicals company Johnson Matthey said in the Platinum 2012 Interim Review Tuesday.

Johnson Matthey is forecasting an average price of $650/oz over the next six months, with a price range of $550-750/oz.

"Supplies will contract mainly because of lower sales of Russian state stocks, forecast to drop by over 500,000 oz compared with last year, to 250,000 oz, while recycling will be constrained by subdued PGM prices. Gross palladium demand is predicted to rise to 9.73 million oz, driven by a return to positive net physical investment and higher autocatalyst purchasing," the report read.

Supplies of palladium are predicted to decline to a nine-year low of 6.57 million oz. Palladium supplies from South Africa are forecast to fall by 6% this year, to 2.40 million oz, in line with lower underlying platinum output. Newly refined palladium supplies from Russia are expected to decrease due to a change in the ore mix and falling average grades.

Article continues below...

Request a free trial of Metals Daily
	Platts Metals Daily offers prices, news and analysis for the aluminum, copper and molybdenum value chains. It contains hundreds of metals prices across base, minor, light and precious metals assessed by editors globally. This detailed report will help you monitor global events and quickly spot opportunities or potential pitfalls as well as bring you aluminum and copper price and news coverage. Daily prices and news for molybdenum are also covered to deliver critical insights.

Supplies of palladium are expected to fall in 2013 as a result of lower output from Russia and the "diminishing likelihood of a significant increase in output from South Africa. Another year of solid autocatalyst and industrial demand is forecast, together with higher returns of palladium from end-of-life vehicle recycling."

AUTO MARKET SET TO GROW BY 7%

Purchasing of palladium by the autocatalyst sector is expected to rise by 7% to a new high of 6.48 million oz. "Demand for palladium is forecast to benefit from growth in global vehicle production, with the strongest performance in the principally gasoline markets of Japan and the USA, as well as continuing substitution of platinum in both light and heavy duty diesel aftertreatment formulations," Matthey said.

Palladium is a key ingredient in gasoline driven engine catalysts.

Industrial demand for palladium is forecast to soften by 3% to 2.41 million oz. "In electrical applications, a long-term trend towards using cheaper base metal alternatives to palladium in all but niche and high-end applications continues to drive demand lower. However, a wave of chemical plant construction in China will stimulate purchasing of palladium for new catalyst charges," the company added.

This year is set to mark the return to positive physical palladium investment demand, in contrast with the net liquidation seen in 2011.

"For the year as a whole, a change in investor sentiment towards palladium ETFs is expected to result in 385,000 oz of net new physical investment demand, a swing of 950,000 oz compared with last year," the report concluded.

--Ben Kilbey, ben_kilbey@platts.com
--Edited by Robert DiNardo, robert_dinardo@platts.com

Tweet