MJSA: The Year in Palladium

THE YEAR IN PALLADIUM
(Part of a longer a article, read it here)

With a 3.5 percent increase in demand to 6.84 million oz. and a supply increase of 8 percent to 8.59 million oz., the palladium market was in surplus by 1.75 million oz. in 2007, according to Johnson Matthey's Platinum 2008. The following data are from the report:

Palladium supplies rose by 8 percent to 8.59 million oz. in 2007. In South Africa, increased sales from refined stocks augmented mine production to bring supplies to 2.77 million oz., just 5,000 oz. below 2006 levels. Russia's primary production declined slightly to around 3.05 million oz. Johnson Matthey believes 1.29 million oz. of Russian State stock shipped in December 2006 were not sold until 2007 and therefore includes these in its estimates for 2007 supplies. Palladium price climbed 11 percent in 2007, ending the year at $365 per oz. The price increase was driven by movements in the dollar and gold and platinum prices, rather than by market fundamentals. Investor interest remained key to palladium's strength. Overall palladium demand grew by 3.5 percent to 6.84 million oz. in 2007, but global jewelry demand for the metal, excluding purchases of jewelry scrap, fell 25.6 percent, from 995,000 oz. in 2006 to a net figure of 740,000 oz. in 2007. Demand from the Chinese market was 500,000 oz., down from 760,000 oz. in 2006, accounting for much of the worldwide decline in jewelry demand.

In China, the effects of the rapid early introduction of palladium jewelry were still evident in the market. The supply chain may have been overstocked in some places, and large quantities of unsold Pd95O pieces were returned for refining and re-manufactured into higher purity Pd990 in 2007, depressing demand for new metal. The relatively small markets of Eurohttp://www.blogger.com/img/gl.link.gifpe and North America saw some growth, though: Demand there increased to a combined total of 95,000 oz. The North American market for palladium jewelry remains in its early stages, though manufacturers and retailers are working to develop it. The high price differential between palladium and platinum and gold has encouraged manufacturers to start working with the metal. On the consumer side, substantial price increases for diamonds are pressuring bridal ring budgets, and some couples have moved to less expensive materials, including palladium, to save money on men's rings. These trends helped drive palladium demand higher in North America, to 50,000 oz. in 2007.

A sluggish economy and competition for disposable income pressured jewelry sales in Japan, forcing palladium demand down by 7.7 percent in 2007. Almost no palladium-only jewelry is sold in Japan, but jewelry manufacturers there bought 120,000 oz. of palladium for use as an alloying agent in white gold and platinum alloys.


2008 FORECAST

Palladium supplies from mining are likely to fall in 2008 compared to 2007. Although Russian production isn't expected to change much, South African metal sales will be dented by the countrywide power supply problems experienced in the first quarter and by a range of other challenges racing the mining industry. Johnson Matthey expects overall palladium demand to grow in 2008. The outlook for global palladium jewelry demand suggests some growth following strong manufacturer purchases in the first quarter of 2008. The March 2008 announcement by the major PGM producers of a concerted marketing campaign for palladium jewelry may drive consumer purchasing and demand higher. The supply and demand forecaset for 2008 suggests a tightening of the market and the potential for price increases. If the platinum price performs strongly in the next six months, palladium is likely to benefit and could trade as high as $575 within the same period. However, investor behavior remains absolutely key. With many millions of ounces of palladium in investor hands, any widespread sell-off, whether driven by poor stock market performance or a U.S. recession, would force the price down. Johnson Matthey expects a floor price no lower than $400 in the coming six months.