Net global palladium demand is forecast to decline by 3.8 per cent to 6.52 million ounces this year according to Johnson Matthey. Autocatalyst demand will be depressed by lower light duty vehicle production in most regions. Electronics, dental and chemical sector purchases are also set to fall due to the effects of the economic slowdown. However, the low palladium price will boost physical investment demand and jewellery demand will rise slightly. Total supplies of palladium, including the sale of 960,000 ounces from Russian state stocks, are expected to fall by 1.8 per cent to 7.18 million ounces. The palladium market is therefore forecast to be in oversupply in 2009 by 655,000 ounces.

Total supplies of palladium expected to decline to 7.18 million ounces

Palladium supplies are forecast to shrink by 135,000 oz to 7.18 million ounces in 2009. Sales from primary production in North America and Russia are set to decline. Palladium sales from South African producers are forecast to rise, despite a decrease in underlying production of palladium in concentrate. Sales of palladium from the remainder of the Russian state stocks, previously shipped to Switzerland, are expected to contribute a further 960,000 oz to supplies.

Gross palladium autocatalyst demand forecast to fall to 3.90 million ounces despite robust performance in China and Europe

Gross palladium demand for use in catalytic converters is expected to decrease by 12.7 per cent to 3.90 million ounces in 2009. Demand in Japan, North America and the Rest of the World region will fall, in line with lower light duty vehicle production. Strong growth in domestic vehicle sales is likely to boost Chinese demand by some 135,000 oz this year. European demand is forecast to fall only marginally as palladium benefits from a short term rise in the market share of the gasoline engine and its steady introduction into diesel exhaust aftertreatment.

Net palladium jewellery demand to rise to 920,000 oz

Net jewellery sector demand for palladium is expected to increase in every region in 2009. Palladium continues to make steady progress as a jewellery metal in Europe and North America. The Chinese jewellery market appears to have stabilised and demand there will rise to 680,000 oz as recycling rates decline.

Palladium set to trade between $290 and $390 during the next six months

The existence of a surplus in the palladium market has weighed on the price over recent years. However, investors seem aware of the imbalance between demand and current mine production and are bullish for the palladium price over the longer term. Demand for palladium will benefit from a recovery in vehicle production volumes and if the funds continue to invest the palladium price could rise to $390 during the next six months. However, any weakness in gold and platinum prices or a strengthening of the Dollar may undermine the price with the possibility that palladium could trade down to $290 during the same period.

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