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

Palladium is expected to set a record average high this year and platinum to post its best price performance in two years as South Africa's supply problems worsen and the economic cycle starts to favour industrial metals, a Reuters poll showed on Tuesday.

More upbeat growth prospects in China and the United States are expected to aid a demand recovery for cars - lifting automakers' demand for platinum group metals, which are used in catalytic converters - and, in platinum's case, jewellery.

A survey of 37 analysts, traders and fund managers returned an average palladium price forecast of $745 an ounce for 2013, 16 percent above last year's average of $641 an ounce and topping 2011's yearly record average high of $730 an ounce.

While palladium rallied to a record intraday high of $1,095 an ounce in 2001, the average price for that year was just $596, based on an average close price recorded by Reuters.

In 2014, palladium is expected to extend gains once again to set an average price of $820 an ounce. Expectations for prices of the autocatalyst metal this year are higher than those of platinum, which is expected to rise 10 percent year on year, and gold, which is forecast to rise by 6 percent.

Palladium posted its biggest quarterly rise in two years in the last three months of 2012, boosted by expectations that demand from US and Chinese carmakers would improve and supply tighten.

Sales from Russian state stocks, a major supplier to the palladium market in the last decade, are expected to dwindle this year, while output from South Africa is forecast to be curtailed by a wave of strikes.

“The potential for a million-ounce deficit in palladium is quite high this year, and in the following years,” Deutsche Bank analyst Daniel Brebner said. “The potential for palladium becoming very tight over the longer term is a real one.”

“We could gradually see a re-rating of palladium versus platinum,” he added. “The ratio between the two is currently 2.3. It certainly can come down to 2 and it might periodically move below that. You'd have to get considerably below 2 for some of the automotive manufacturers to consider swapping between the two. The moves are likely to be in favour of palladium now.”



Respondents to the Reuters poll forecast a rebound in platinum prices to an average $1,700 an ounce this year, up 10 percent from 2012's average $1,546 an ounce and its highest yearly average since 2011's $1,716 an ounce.

Platinum, a higher loading of which is used in diesel engines, has a more exposure to the troubled European car market than palladium, which is more heavily used in the gasoline engines favoured in the US and China.

But the metal is also more exposed to supply outages from South Africa, which has seen a wave of strike action in the last six months that has led to supply outages. Around three quarters of the world's platinum supply comes from South Africa, against around one third of palladium supply.

Plans by number one platinum miner Anglo American Platinum to mothball two mines this year and sell another, cutting an estimated 400,000 ounces of platinum supply, has helped the metal outperform other precious metals this year.

“Removing some production is positive for prices, but it will take some time to have a real physical impact on the market,” Mitsui Precious Metals analyst David Jollie said.

“That doesn't mean that prices won't move higher later in the year. The Chinese economy is recovering. The European economy is not recovering, but may be stabilising before recovering in 2014, 2015. So there is a possibility that prices could move higher later in the year, based on real demand.”

In 2014 platinum is expected to average $1,800 an ounce. - Reuters