The palladium market was in surplus by 760,000 oz in 2009. Gross demand decreased by 6.3 per cent to 7.77 million ounces, while the amount of palladium recovered from scrapped autocatalysts, electronics and jewellery fell by 11.5 per cent to 1.43 million ounces. Net demand thus declined by five per cent to 6.34 million ounces. Supplies of palladium fell by 2.9 per cent to 7.1 million ounces. Production from current Russian mining slipped marginally to 2.68 million ounces and sales of material from Russian state stocks are estimated to have contributed another 960,000 oz of palladium to supplies. South African supplies dropped by 60,000 oz to 2.37 million ounces.

SCRAPPAGE SCHEMES AND INCENTIVES SUPPORT PALLADIUM AUTOCATALYST DEMAND
Gross purchases of palladium for use in autocatalysts decreased by 9.3 per cent to 4.05 million ounces in 2009, largely due to the fall in global vehicle output. However, European auto demand for palladium was almost flat with 2008, as various scrappage schemes supported the sale of gasoline-fuelled vehicles and palladium continued to gain ground at the expense of platinum in diesel engine catalysts. Demand for palladium for the rapidly expanding China vehicle market grew to 685,000 oz, up by 76 per cent on 2008.

WEAKER PALLADIUM JEWELLERY DEMAND DUE TO STAGNATING CHINA MARKET
In the jewellery sector, gross global demand for palladium decreased by 17.3 per cent in 2009 to 815,000 oz. Gross demand in China slipped from 740,000 oz to 560,000 oz as manufacturers devoted resources to making platinum jewellery. North American demand was flat but European demand was driven marginally higher by the introduction of a palladium hallmark in the UK. Net global demand fell by 12.9 per cent to 745,000 oz.

DECLINE IN INDUSTRIAL DEMAND FOR PALLADIUM OFFSET BY SOLID INVESTMENT OFFTAKE
Gross industrial demand for palladium (including dental demand) decreased by 5.8 per cent to 2.28 million ounces in 2009 as the effects of recession lingered. Gross electrical demand fell by 100,000 oz to 1.27 million ounces due to lower output of automotive electronics and heavy destocking of components in early 2009. Recycling of electronic scrap increased by 50,000 oz, leaving net electrical demand down 14.6 per cent at 875,000 oz. Identifiable physical investment demand for palladium climbed by 48.8 per cent to 625,000 oz in 2009. Once again, there was strong buying interest in palladium through the European ETFs, encouraged by the rising metal price.

PALLADIUM PRICE TO BE SUPPORTED BY BETTER FUNDAMENTALS AND INVESTOR SENTIMENT
The palladium market is likely to be in oversupply again in 2010, although with a smaller surplus than in 2009. However, excluding sales of metal from Russian state stocks, the market has been in fundamental deficit during the last two years and recent price movements indicate that many investors see potential long-term profits in this metal. If investors continue to build on their large futures and ETF positions, then recovering industrial and automotive demand could help to drive palladium to $700 per oz in the next six months, with the price unlikely to soften below $475.

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