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The palladium price is near its lows for the year and should rally by as much as 35 per cent in the next six months as the market swings into a deficit, Johnson Matthey predicted on Monday.
The precious metals refiner made the bullish call in its annual review of the platinum and palladium markets, forecasting that palladium prices were unlikely to fall from current levels and could trade up to $800 an ounce in the next six months.
The palladium price has tumbled 13.5 per cent in the past two weeks, hitting a five-month low of $587 a troy ounce on Monday morning, swept up amid concerns about Chinese growth and the eurozone crisis.
But JM, whose data on supply and demand for the so-called “platinum group metals” are used as benchmarks by the industry, said that the palladium market would register “a fairly substantial deficit” this year.
“We are bullish on palladium,” said Jonathan Butler, publications manager at JM, predicting an average price for the next six months of $715 a troy ounce, 20 per cent above Monday’s spot prices.
The bullish forecast is based on expectations of rising demand from the auto industry, which uses palladium in catalytic converters that clean exhaust fumes and is the metal’s largest source of demand.
At the same time, sales of the metal from the Russian government’s stockpiles, which last year numbered 750,000 ounces or a tenth of total global supply, are forecast to fall by two-thirds to 250,000 ounces this year. “We think this represents the bulk of the remaining inventories in the government stocks that have been held for a long time,” Mr Butler said.
Finally, investors in palladium exchange traded funds, who last year sold 565,000 ounces on a net basis and were the principal driver of a 1.25m ounce surplus of supply over demand, were likely to return as buyers this year, JM said.
Meanwhile, JM predicted that supply would continue to outstrip demand in the platinum market, as industrial buyers of the metal in the glassmaking and chemicals industries cut purchases. The refiner said that the market would see oversupply on a similar scale to last year’s 430,000 ounce surplus, despite production problems in South Africa, the world’s top platinum miner.
Nonetheless, JM predicted that platinum prices would average $1,600 a troy ounce over the next six months, trading in a range of $1,450 to $1,750 on the back of buoyant demand from China’s jewellery industry. Last year, global jewellery demand rose 2.5 per cent, driven by Chinese consumers, and JM predicted a similar rate of growth for 2012.
On Monday, platinum prices were trading at a four-month low of $1,444 a troy ounce.