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Nov. 15 (Bloomberg) -- Palladium demand will fall short of supply by the most since 2007 this year as investor sales and more recycling outweighs record usage by carmakers and higher industrial consumption, Johnson Matthey Plc said.
Lower jewelry purchases for a third consecutive year will help cut total demand by 8.7 percent and leave the market in a surplus of 725,000 ounces, compared with last year’s shortage of 530,000 ounces, London-based Johnson Matthey said today in a report. The researcher and trader in May had predicted a 2011 deficit and now expects that to occur next year. Platinum usage will fall short of supply by 195,000 ounces this year and there will be a “small” surplus in 2012, Johnson Matthey estimates.
While auto and industrial demand for palladium is rebounding after the worst global recession since World War II cut consumption, prices slipped this year as investors pulled metal from exchange-traded products and commodities headed for the weakest performance since 2008. The metal would be in shortage without sales from Russian state stocks, which Johnson Matthey estimates will be “much reduced” next year. Platinum and palladium are mainly used in car devices and jewelry.
“Auto and industrial demand has done well,” said Jonathan Butler, publications manager at Johnson Matthey, in an interview in London. “If we didn’t have those Russian shipments, we would have a market that is in balance. There’s still a core of investors there who believe in the palladium story.”
Palladium for immediate delivery traded at $662.25 an ounce at 7:32 a.m. in London today, and is down 17 percent this year after almost doubling in 2010. It will average $650 in the next six months, trading between $500 and $800, Johnson Matthey said. Platinum, at $1,639.50 an ounce, will average $1,650 in the period, remaining above $1,450 and climbing as high as $1,800. It’s dropped 7.4 percent in 2011 after 2010’s 21 percent rise.
Palladium demand from automakers will climb 6 percent to a record 5.9 million ounces this year and more usage from electrical and chemical industries will bring gross demand to 8.9 million ounces, the researcher said. Autocatalyst demand for platinum will rise 2.8 percent to a three-year high of 3.2 million ounces, leaving gross consumption at 8.1 million ounces, the most since 2007. Platinum’s shortage last year was 25,000 ounces, it said.
Palladium use in car exhaust devices rose more than for platinum as manufacturers used more of the cheaper metal in diesel catalysts, Johnson Matthey said. Diesel vehicles typically use more platinum and gasoline cars have higher palladium loadings.
Increasing demand from automakers helped push palladium to a 10-year high of $862.25 in February and platinum to a three- year high of $1,916.75 in August. The metals’ performance this year compare with a 4.5 percent gain in the Standard & Poor’s GSCI Index of 24 commodities. The MSCI All-Country World Index of equities fell 8.1 percent, and Treasuries returned 8.8 percent, according to a Bank of America Corp. index.
Palladium sales from Russian state stocks, a government secret, will be 750,000 ounces this year, Johnson Matthey said. The country plans to export 4 to 4.5 metric tons (144,678 ounces) in 2012 and the same the following year, Interfax said last month, citing an unidentified Finance Ministry official connected to the state repository, Gokhran.
Investor sales of palladium will be 215,000 ounces this year, compared with purchases of 1.1 million ounces last year, and platinum investment will fall 24 percent to 495,000 ounces, Johnson Matthey said. As jewelry demand rises 1.9 percent to 2.5 million ounces for platinum, it will slump 8.4 percent to an eight-year low of 545,000 ounces for palladium, it said.
“There’s been a tremendous demand for gold jewelry in China and manufacturers have had to find capacity to make gold,” and that hurt palladium jewelry production, Jeremy Coombes, general marketing and publications manager at Johnson Matthey, said in London. “The fact that gold is at a premium to platinum, from where we understand it, this makes platinum an attractive purchase.”
Recycling, adding to supply, will rise 2.7 percent to 1.9 million ounces for platinum and jump 19 percent to 2.2 million ounces for palladium, according to Johnson Matthey. The company estimates mine supply will gain 5.7 percent to 6.4 million ounces for platinum, helped by resuming output in North America. Palladium output, including Russian state stock sales, will be little changed at 7.4 million ounces.
Tighter environmental legislation in the next few years means devices in off-road machinery such as lawnmowers will be a “reasonably large” part of demand for platinum, Coombes said. Off-road emissions will make up about 130,000 ounces of platinum-group metal demand this year, Johnson Matthey said.
Rhodium’s surplus will widen 40 percent to 123,000 ounces this year as mine supply and recycling increase faster than consumption, Johnson Matthey said. The metal, mainly used in auto catalysts and the chemical and glass industries, will be in surplus again next year even as the market “tightens,” it said. Prices are down 31 percent this year at $1,675 an ounce, according to Johnson Matthey prices on Bloomberg.
Ruthenium consumption will slip 14 percent to 811,000 ounces. It’s mostly used for coating computer hard disks. Demand for iridium, used in spark plugs and for growing metal oxide crystals, will rise 1.2 percent to 342,000 ounces, the most since at least 2004, the researcher said.
--Editors: Claudia Carpenter, Sharon Lindores
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