Palladium to rally 24% as Russia May Limit Supply, Ikemizu Says  

January 14, 2011


(Bloomberg) -- Palladium, used in catalytic converters for cars, will rally 24 percent to a near record as rising car sales in China boost demand and supply from top exporter Russia may decline, said the head of commodity trading in Japan at Standard Bank Plc.

The metal may reach $1,000 an ounce this year for the first time since 2001, when the price surged to an all-time high of $1,125, Bruce Ikemizu, who has traded commodities for more than 24 years and correctly forecast in June that gold would surpass $1,300, said in an interview in Tokyo.

Precious metals have advanced as the European Union bailed out Greece and Ireland, prompting investors to seek a hedge against inflation and currency debasement. Gold rallied 30 percent, silver 83 percent, platinum 21 percent and palladium almost doubled as the Federal Reserve kept borrowing costs low and bought bonds to boost growth.

"Car sales expansion will boost palladium as the industry is the biggest consumer of the metal," Ikemizu said Jan. 12. "Supply may become unstable as stockpiles of the metal held by the Russian government may have almost depleted."

Palladium for immediate delivery gained as much as 0.8 percent to $817.25 an ounce, the highest level since March 2001, before trading at $810.30 at 2:59 p.m. in Tokyo yesterday.

The metal, which has quadrupled in the past two years, will extend a rally as a recovery in U.S. vehicle sales adds to continued expansion in emerging markets including China and India, boosting demand for the metal used in auto catalysts amid uncertainty about Russian shipments, Ikemizu said.

China's vehicle sales will grow by around 10 to 15 percent this year after jumping 32 percent to 18.06 million units in 2010, according to the China Association of Automobile Manufacturers.

Russian Supply

Russian supply increased 2.1 percent to 3.71 million ounces last year, representing 52 percent of global supply, according to a November report from Johnson Matthey Plc, a London-based refiner. Of Russia's total, 1.01 million ounces was from stockpiles, it estimated.

OAO GMK Norilsk Nickel, the world's biggest palladium producer, said last month it expects Russia's state repository Gokhran to sell "insignificant" amounts in 2011 before exiting from global markets in 2012. The company may also supply the metal to exchange-traded funds, it said.

"Russia is said to be completing palladium sales from the state reserves," Ikemizu said. "There are concerns about supply" as the nation's shipments may become as small as its production level, he said.

2001 Record

Palladium soared to a record in January 2001 as a disruption in Russian shipments spurred speculators in futures on the Tokyo Commodity Exchange to buy back the contracts. The bourse was the largest for palladium futures at the time. The most-active contract jumped to an all-time high of 3,710 yen a gram on Jan. 29, 2001. It rose 2 percent to 2,178 yen yesterday.

Palladium supply exceeded demand by 45,000 ounces last year, the lowest amount since a shortage in 2000, according to the Johnson Matthey report. Sales from Russian state stockpiles were the third-biggest contributor to world supply after mine output from Russia and South Africa, it said.

Car-sales growth will also boost platinum to as high as $2,000 an ounce this year, Ikemizu said. It is unlikely to drop below $1,600 given the costs to produce the metal in South Africa, the world's biggest supplier, he said.

Platinum is mainly used for catalysts in diesel vehicles, which are popular in Europe.

"Palladium will benefit more from car-sales growth as it is more affordable than platinum," said Kazuhiko Saito, an analyst at Tokyo-based broker Fujitomi Co. "Platinum isn't used much as an auto catalyst in China, where demand for jewelry fabrication is strong."

Platinum for immediate delivery lost 0.4 percent to $1,794 an ounce at 2:59 p.m. in Tokyo yesterday after reaching a two- month high on Jan. 12. It climbed to a record $2,301.5 in 2008.

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