Global palladium market is set to move into deficit in 2012 while the platinum market will stay in surplus, according to Johnson Matthey 2011 interim review.

In the current year, as supply growth outpaces healthy demand, both markets are in a state of surplus. JM estimated the surplus in platinum at 195,000 ounces and in palladium at 725,000 ounces. Both precious metals enjoy rising industrial use.

After a gap of four years, platinum demand in 2011 is projected to grow in excess of 8 million ounces. Industrial demand is at a record high driven by glass manufacturing as new LCD glass melting tanks are installed in addition to new petroleum refining capacity, according to experts.

Interestingly, with gold prices trading at a premium, platinum has benefited from jewellery demand too. Manufacturers and retailers are said to be restocking the metal.

After platinum came under intense pressure in early October with prices falling below $1,450/oz, the market recovered slowly and moved past the $1,600/oz mark. However, amid widespread sell-off following uncertainties over the European sovereign debt crisis, lately, platinum moved below $1,600/oz with London PM Fix at $1,594/oz on November 19.

China's platinum imports continue to remain strong with the recent price declines prompting increased physical purchases. ETP flows are also positive. In 2012, total supply of platinum (primary plus scrap sales) would be an estimated 8.4 million ounces while demand (auto-catalyst, jewellery and industrial) is placed at 8.3 million ounces.

In the first quarter of 2012, platinum is forecast to trade higher at a quarterly average price of $1830/oz, from the current quarter projected average of $1,775/oz.

Palladium: The anticipated swing in the world palladium market from surplus this year to deficit next year will be the result of a combination of demand side and supply side factors. A close to five per cent decline in primary supply to 6.7 million ounces and a nearly 10 per cent expansion in end-use demand to 9.2 million ounces is what's going to drive the palladium market in 2012.

Growing auto and industrial demand on the one hand and expected recovery in investor interest and fall in stock releases are going to create an extremely tight situation. This will have implications for palladium prices next year. However, this assumes no major negative surprises on the global economic front.

China's palladium imports continue to stay strong and have a positive correlation with the country's booming auto sector growth. This bodes well for the metal's prices especially in the backdrop of tightening fundamentals.

For 2012 first quarter, palladium is forecast to trade at a quarterly average of $845/oz, up sharply from the current quarter projected average of $740/oz.

gchandrashekar@thehindu.co.in

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