Platinum, palladium will struggle for major gains

The rise in platinum and palladium prices will slow this year and next, with palladium in particular struggling to replicate its stellar performance of recent years as the economic recovery remains stubbornly sluggish, a Reuters survey showed on Friday.
According to the 35 analysts and traders polled, palladium is set to average $800 an ounce in 2011. As Reuters data shows the metal averaged $772 an ounce in the first half of the year, this suggests further gains will be hard won. The new forecast is well above the average shown by Reuters data for palladium prices last year of $527 an ounce, but suggests a much lower rate of growth than in previous years.
Palladium prices doubled in 2010 and 2009 as rising demand for the autocatalyst metal from the car industry and expectations that supply would ease fuelled investment in vehicles such as exchange-traded funds. "Since February 2011, the market has become less positive on the prospects of palladium - probably due to a lack of new drivers," said ABN Amro analyst Georgette Boele.
"Since then, ETF palladium positions have decreased to just less than 2.1 million ounces, down from the high close to 2.35 million ounces - a retracement that has been rather modest. Palladium prices have moved in the same direction as these ETF holdings, although in a more volatile manner." Concerns over the outlook for Russian supply, particularly from its top-secret state stockpiles, have also receded. "Palladium we have always had pretty much in surplus, simply because of the Russian stock sales, which aren't imminently going to run out," said Credit Agricole analyst Robin Bhar. "We don't see a dramatically tightening market for palladium until maybe the end of next year."
In 2012, prices are expected to rise slightly to $868 an ounce, the poll showed. Both forecasts are only a touch above those delivered by a similar poll in January. The survey returned a median average platinum price forecast of $1,804 an ounce, little changed from January's forecast. Next year's forecast was unchanged from the last poll at $1,900 an ounce.
Platinum demand growth is likely to be tempered by a slow recovery in the European car market, a major consumer of the white metal. European cars are more often powered by diesel engines, which carry a higher loading of platinum than palladium. Refiner Johnson Matthey said in a report earlier this year that growth in platinum demand in autocatalyst manufacturing was likely to be slower this year than in 2010.
Other areas of consumption, such as jewellery and Asian investment, are likely to be curbed by already elevated prices, analysts said. "Platinum is in a sizeable surplus this year and is expected to be the clear under-performer in the precious metals sector from early June moving through 2012," said Societe Generale analyst David Wilson.
"The possibility of a bumpy landing in China will work against local jewellery demand, which has been an important prop for the market." The survey showed that analysts expect platinum prices to edge up throughout the year, averaging $1,775 an ounce in the third quarter and $1,835 in the fourth. They see palladium at $800 an ounce and $850 an ounce in the same periods.