The surplus in the palladium market is set to fall to 320,000 oz in 2008, according to new research released today (18th November).

Johnson Matthey's Platinum 2008 Interim Review revealed that global supplies of the precious metal fell by 12.5 per cent to 7.51 million ounces during the year.

In addition, the study found that palladium demand rose by 3.8 per cent to 7.19 million ounces in 2008, a figure the company largely attributes to strong investment interest in physical ETFs.

Large volumes of palladium were bought through the two European Exchange Traded Funds early in the year and overall physical investment demand should rise from 260,000 oz in 2007 to 470,000 oz for 2008.

The decrease in supply is mainly as a result of the slipping sales of palladium from Russian state stocks, which are expected to drop to 800,000 oz, compared to 1.49 million ounces last year.

Supplies from primary production in Russia will fall to below three million ounces, while sales in South Africa will dip to 2.525 million ounces after a year of turmoil in the country's mining sector.

Meanwhile, Johnson Matthey also revealed that vehicle manufacturers will purchase a gross 4.58 million ounces of palladium in 2008, a rise of 30,000 oz from the figure recorded for 2007.

And while plummeting production of new autos in North America will cut demand by 350,000 oz, this is likely to be offset by rises in China, Russia and South America, plus increased use of the metal in diesel oxidation catalysts in Europe.

In terms of the price of palladium, the company is forecasting that it could hit as low as $125 in the next six months as the economic turmoil deepens, although the metal's strengthening fundamentals could equally take it to around $300.

Source:

JOHNSON MATTHEY RELEASES "PLATINUM 2008 INTERIM REVIEW" (18/11/08)
http://www.platinum.matthey.com/publications/pgmreview.html