REUTERS

Sheets of palladiums are pictured at a jewellery factory.

Palladium could climb as high as US$1200 an ounce this year as a result of the world economic recovery and South Africa's increased power costs, analysts forecast.

A price of $1200 an ounce would better the metal's previous record high of $1125 an ounce set in early January 2001.

The metal almost doubled to nearly $800 an ounce over the course of 2010 and was last quoted at $767 a ounce. Palladium is used predominantly in catalytic converters in gasoline-powered vehicles to reduce pollution and was one of last year's top performing commodities.

Analysts expect the consumption of palladium to increase this year, mainly due to demand from China, which boasts the world's largest auto market that is dominated by gasoline-powered vehicles, which use palladium in their catalytic converters.

James Moore, a Fast Markets analyst, said palladium price was being driven by several factors. “Auto manufacturers began re-stocking greatly depleted inventories as the US and Chinese (gasoline intensive) car sales increases,” he said.

Moore predicted the price of palladium would trade in a range between $550 and $1200, and that the metal's price would average $750 this year.

William Adams, a senior researcher at Fast Markets, also forecast that the metal will continue to do well.

However, he cautioned that the metal was overpriced due to the influence from silver and gold, which reached record levels last year, he said.

He said the depletion of Russian stock piles was a contributing factor to the increase in price.

“The level of Russian stock piles is a state secret, and it's hard to know how accurate the stock pile limit is at this stage. If the Russian stock pile is depleted, then prices are justified,” he said.

South Africa supplies 35 percent of the world's palladium and the price of electricity will increase by 25 percent this year.

Leon Esterhuizen, Royal Bank of Canada Capital Markets mining analyst, said: “You can see an explosion in the price of palladium this year to $1000 an ounce. It will be driven by issues in South Africa like wage increases, and power supply.”

The growing auto manufacturing market in gasoline and not diesel is also an issue. “In China and India there is a strong demand but there is not enough supply,” he said. - Dineo Matomela for the Business Report website