Jan Harvey London

Palladium will reach its highest yearly average price on record this year and could top that next year as expectations for lower South African output combine with a recovery in demand and doubts over Russian supply, a Reuters poll showed.

The metal, which averaged $777 (R8 219) an ounce in the first half, is expected to average $805.50 in the full year, up more than 10 percent from last year and its highest since Reuters data began in 1984, a survey of 31 analysts and traders showed.

Next year it is expected to extend that average to $875.

Palladium, chiefly used in auto catalytic converters, is forecast to average $860 an ounce in the fourth quarter, its best performance since the first three months of 2001.

A drop in local production after a five-month strike by miners this year is expected to help push the market balance for palladium further into deficit this year, after GFMS analysts estimated a 1 million ounce shortfall last year.

Some analysts feared supply from major producer Russia could be affected by its stand-off with the West over Ukraine. Russia and South Africa accounted for three quarters of mined output last year.

At the same time, demand is showing signs of picking up as vehicle sales rise in the US and China – major markets for the petrol-powered vehicles that use a higher proportion of palladium than diesel-powered cars.

“If global growth continues and there is a pick-up in the Chinese economy, I believe there will be a supply shortage by the fourth quarter for platinum, palladium and rhodium,” Peter Hug at Kitco Metals said. “A potential for a $1 000 print in palladium by year-end is possible.”

The poll also predicted prices of platinum, which have averaged $1 432 an ounce so far this year, to climb steadily to an average of $1 545 in the fourth quarter. Respondents cut their forecasts for the full year to $1 475 an ounce from $1 500 in a similar poll in April after the metal failed to show much immediate benefit from the strike.

“Prices did not react much to the strike, because the market was sufficiently well supplied from refined inventory and the expectations of industrial users were well managed,” Mitsubishi analyst Jonathan Butler said.

“However, we believe a slow ramp-up to full production will mean further losses to output and should help support prices this year and next.” – Reuters