Palladium to hit $420/oz in '07

The current uptrend in palladium is likely to push the precious metal price up to $420 an ounce this year, according to a forecast by Gold Fields Mineral Services (GFMS) in its latest report on Wednesday. Currently, the precious metal is quoted at $375 in London.

Demand in 2007 is forecast to rise in autocatalysts and jewellery sectors to the extent that they could well outweigh gains from slightly higher mine production and autocatalyst scrap. Despite this, heavy Russian stock sales are again expected to tip the metal into a sizeable residual surplus.

Nonetheless, the price outlook is still seen bullish due to continued investor support, linked to buoyancy in other precious metals and further substitution opportunities in autocatalysts and the longer-term promise for palladium jewellery.

Of late, palladium has started substituting platinum in a big way as a cheaper and equally efficient alternative.

Having stabilised in 2005, demand for palladium in autocatalysts registered an increase for the first time in six years in 2006. With demand for autocatalysts rising 8 per cent to 4.5 million ounces, palladium was increasingly used in gasoline autocatalysts (often at the expense of platinum), and benefited from higher production of light-duty gasoline vehicles worldwide, especially in emerging nations such as China. Palladium's use in autocatalysts was also further aided by tightening emissions legislation in a number of key vehicle markets, which served to enhance loadings and limited the opportunity for thrifting.

The performance of palladium jewellery remained lacklustre in 2006, which recorded a modest increase (in volume terms) in the United States (due to growth in palladium jewellery produced almost entirely for the wedding market). This was easily offset by a sharp decline in other major consuming markets including China.

The precious metal also moved from a small deficit to a slight gross surplus in 2006, largely as a result of a modest rise in mine production and then a substantial jump in autocatalyst scrap. These gains outweighed the 2 per cent increase in total demand, itself stemming from higher autocatalyst demand and despite lower jewellery offtake. More importantly, however, sales from stocks of over 1.6 million ounces left the market in substantial residual surplus conditions.

The report forecast a recovery in global palladium jewellery demand, although much will depend on whether palladium gains greater acceptance in the US and China.

Global palladium mine production in 2006 registered a 5 per cent rise at 7.26 million ounces (225.7 tonnes). Palladium witnessed a more modest rise in global output partly because of slower growth from the world's largest producer, Norilsk Nickel, which increased output by a modest 31,000 ounces (1.0 tonne) to 3.164 million ounces (98.4 tonnes). South Africa, in contrast, reported a strong increase in palladium output, with Canada and the US also reporting higher production, the former partly thanks to the underground development at North American Palladium's Lac des Iles mine.

With continuing expansion in South Africa, the consultancy company expects mine supply to rise by a slender 2 per cent, with gains in South Africa anticipated to be partly offset by lower production forecast from the world's number-one producer, Norilsk Nickel.