Russian palladium sales key to 2008 supply - JM

By Aleksandras Budrys

MOSCOW, May 19 (Reuters) - Palladium sales from Russian state stocks this year will hold the key to world supply of the metal used to clean vehicle exhaust gases, Johnson Matthey Plc (JMAT.L) said on Monday.

"We currently forecast that palladium supplies will fall this year -- subject to sales of Russian state stocks falling -- and that demand will grow again in 2008," the platinum group metals (PGM) specialist said in its 2008 review.

It said it did not expect Russian output to change notably.

But it added that shipments of roughly 500,000 ounces from Russia into Switzerland in December 2007 may not have reached the market that year, and were therefore likely to form part of 2008 supplies.

"If so, the palladium market is likely to be in surplus again," it said.

Russian PGM supplies comprise shipments by Norilsk Nickel (GMKN.MM) (NKELyq.L) the world's top palladium miner, and smaller producers of platinum from alluvial deposits, as well as sales from government stocks, which are deemed a state secret.

In 2007, total Russian palladium supplies rose to 4.54 million ounces, an increase of 15.8 percent compared with 2006, Johnson Matthey said.

Norilsk's sales of palladium declined slightly to 3.05 million ounces last year from 3.22 million in 2006, while supplies from state stocks rose to some 1.49 million ounces from 700,000, although some of this metal was shipped in late 2006.

Trade data shows 1.29 million ounces of Russian state-owned palladium was shipped to Switzerland end-December 2006, it said.

Johnson Matthey believes that, similarly, the 500,000 ounces of Russian metal which reached Zurich late in 2007 were not sold to the market during that year and therefore excludes this volume from its 2007 estimate of Russian palladium supplies.

PLATINUM, RHODIUM SUPPLIES

Russian supplies of sister metal platinum were interrupted for the first few months of 2007 due to confusion over the implementation of new export licensing rules, leading to some tightness in the market over this period, Johnson Matthey said.

But the company believes all Russian primary platinum production, from Norilsk and from alluvial producers -- Amur and Koryakgeoldobycha -- was sold during the year.

"With primary Russian production declining slightly and state stocks effectively exhausted, platinum sales were just below the 2006 total at 910,000 ounces," Johnson Matthey said.

Of this, 727,000 ounces of platinum came from ores mined by Norilsk in Russia, representing a fall of 3 percent from 2006.

Supplies of platinum from alluvial mines in the Far East of Russia were slightly up in 2007, at just under 185,000 ounces.

Amur, the larger of the two operations, reported a decline in platinum grades, but compensated for this by greatly increasing the volume of sands processed.

Russian rhodium shipments fell to 90,000 ounces from 100,000 ounces in 2006. While primary production remained unchanged, sales from state stocks were lower than in the previous year.

The interruption to Russian shipments in early 2007 due to the lack of relevant export rules did not affect the total amount of metal shipped over the year, Johnson Matthey said. To see a FACTBOX on Russian platinum group metals producers, please double-click on [ID:nL05128725] (Reporting by Aleksandras Budrys, Editing by Peter Blackburn)