FACTS ‘N’ FIGURES — Palladium demand on rise

Supplies of palladium in 1997 stand at 5.65 million oz., well short of the demand of 7.44 million oz., according to a report published by London-based metals trader Johnson Matthey.

The study, entitled “Platinum 1997,” shows that demand outpaced supply to the tune of 1.79 million oz. this year as a result of decreased Russian supply. Following a 6-month gap in Russian exports, sales by state-owned Almaz will decline to 3.2 million oz. this year, and modest increases in shipments from other countries will do little to make up the difference. At the same time, strong growth in palladium use in the auto and electronics industries in 1997 increased demand by 1.27 million oz., to boost total demand to 7.44 million oz.

The shortage of Russian metal caused increasing tightness in the physical market during the first half of 1997, culminating in a rise in short-term lease rates to over 200% in early June. The palladium price doubled from around US$120 per oz. in January to US$240 per oz. in early June. It retreated to US$162 per oz. when Russian shipments resumed, but spiked to an 18-year high of US$245 per oz. in August as investors on the Tokyo Commodities Market bought back substantial short positions. For most of September and October, palladium traded between US$190-210 per oz.

The Central Bank of Russia has stated its intention to ensure that there are no delays in shipments in early 1998, and to adjust palladium exports according to market requirements. During the next six months, spot sales by Almaz are expected to limit any rally in the price above US$230 per oz.

However, the market remains nervous about the security of Russian supplies and this, combined with rising consumer demand, is forecast to keep the price above US$190 per oz.

Russian shipments of palladium were suspended for six months at the beginning of 1997, following changes to the country’s precious metals bureaucracy. Contractual shipments resumed in July and have been supplemented by substantial spot sales, but it is unlikely that exports during the second half of 1997 will match last year’s total.

The metal being exported this year is believed to belong to the central bank, which in 1996 acquired much of the Russian government’s stock of platinum group metals (PGM). Despite withdrawals totalling more than 9 million oz. between 1993 and 1997, remaining stocks of palladium held by the bank and State Fund (Gokhran) should be sufficient to meet forecast levels of consumer demand for several years. When these reserves are exhausted, Russian sales will depend upon the level of production from the Noril’sk Nickel Kombinat, which is currently estimated to be less than 2 million oz.

per year.

Producers in South Africa and North America will ship more palladium in 1997, but this will be insufficient to compensate for the fall in Russian supplies. In the medium term, the prospects for additional palladium production outside Russia are limited.

Automakers are expected to purchase 3.07 million oz. this year, an increase of 710,000 oz. compared with 1996. In Europe, most new gasoline-powered cars are now being equipped with palladium catalysts.

Consumption of palladium in the electronics sector is forecast to increase in 1997 by 500,000 oz., to 2.54 million oz. Consumption of palladium in other applications will rise by 60,000 oz., to 1.97 million oz.