Sheets of palladium are pictured at a jewellery factory. File picture: Yuriko Nakao

London - Palladium will reach its highest yearly price on record this year and could top that in 2015 as expectations for lower South African output combine with a recovery in demand and doubts over Russian supply, a Reuters poll showed.

Palladium, which has averaged $777 an ounce in the first half, is expected to average $805.50 an ounce in the full year, up more than 10 percent from 2013 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.

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

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

Some analysts also feared supply from major producer Russia could be affected by its stand-off with the West over Ukraine.

Between them, Russia and South Africa accounted for three-quarters of mined output of the metal last year.

At the same time, demand is showing signs of picking up as auto sales rise in the United States and China - major markets for the gasoline-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 this year for platinum, palladium and rhodium,” Peter Hug, an analyst at Kitco Metals, said.

“A potential for a $1,000 print in palladium by year-end is certainly possible.”


Respondents to the poll also expected prices of platinum, which have averaged $1,432 an ounce so far this year, to climb steadily through the second half to an average of $1,545 an ounce in the last three months of the year.

They have cut their expectations for platinum prices in the full year to $1,475 an ounce from $1,500 in a similar poll in April, however, after the metal failed to show much immediate benefit from the South African 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 that a slow ramp-up to full production will result in the second half of 2014 from the need to refill the processing pipeline, re-open stopes (mine excavations) and re-train staff. This will mean further losses to output and should help support prices in the remainder of this year and into next.”

In 2015 platinum prices are expected to rise to an average $1,600 an ounce, their highest average since 2011. - Reuters