PLATINUM WEEK-Palladium to climb as Russia cuts sales-Johnson Matthey

Mon May 13, 2013 6:00am EDT

* Palladium expected to average $740/oz in next 6 months

* Russian stock sales seen falling to 100,000 oz this year

* South African platinum output expected to remain flat

* Platinum set to average $1,570/oz in next 6 months

By Clara Denina

LONDON, May 13 (Reuters - China's demand for cars and lower Russian palladium sales should keep the world market for the metal used for autocatalysts in deficit and send its price to the highest since mid-2011, refiner Johnson Matthey said.

Johnson Matthey on Monday predicted a high for palladium of $830 an ounce, a low of $635 and an average of $740 in the next six months, up from its 2012 average of $643 and compared with its year-to-date average of $662.

"Palladium has the strongest fundamental outlook of all the platinum group metals," senior analyst Lucy Bloxham said.

"We are expecting further declines in supply this year, largely as a result of reduced Russian stocks sales, while the real driver for palladium's growth is the emerging markets, particularly China this year."

Johnson Matthey expects Russian palladium stock sales to slide to around 100,000 ounces this year from 250,000 in 2012.

Coupled with continued recovery in demand from carmakers, and tighter emissions standards for gasoline light duty vehicles, particularly in China and Russia, the supply shortfall should help bolster palladium investment interest from exchange-traded products (ETPs) subscribers.

This year's deficit could potentially be bigger than a shortfall of 1.07 million ounces in 2012, which was also helped by a 470,000 ounce inflow into palladium exchange-traded funds (ETFs), chiefly in the United States and Europe.

"Last year there was a swing in investment of over one million ounces (from liquidation of 565,000 ounces in 2011) and although it's always hard to predict what it will be, ETFs demand has been pretty good this year so far, with inflows of around 200,000 ounces," Johnson Matthey general manager John Cullen said.

PLATINUM

The platinum market could see a modest deficit in 2013, depending on the strength of investment demand, as the European autocatalyst market declines and primary supply increases.

There was a 375,000 ounce shortfall in 2012.

"We see a marginal increase in primary supply overall and in South Africa this to be broadly flat from last year and that's as the Anglo American mine closures go ahead," Bloxham said.

"We don't expect to see demand in auto grow because the weakness in Europe will probably be balanced by increases in Japan, India, U.S. light duty vehicles and continued growth of U.S. heavy duty."

Prices should average $1,570 an ounce over the next six months, above 2012's average of $1,552 but lower than the year-to-date average of $1,594, Johnson Matthey said.

Platinum is expected to range from $1,415 to $1,710 an ounce.

"If we see strikes again during wage negotiations in South Africa starting next month, prices have the potential to go higher," Cullen said.

However, he noted that strikes, safety stoppages and higher costs in 2012 had failed to propel prices to new highs.

Secondary supply is also seen increasing, with recovery of platinum from the autocatalysts sector rebounding after some collectors in Europe and North America hoarded inventory last year because of lower platinum prices, Bloxham said.

On the demand side, platinum jewellery offtake is seen slowing slightly after last year's growth, while a rebound in industrial demand will be led by higher purchases from the glass industry.

"Jewellery demand was incredibly strong in China last year (up 16 percent to 1.9 million ounces) and will remain buoyant in 2013, although probably not quite matching the same level," Cullen said.

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