The market is looking for palladium to hit $1,000/oz before the end of 2014, as the industrial/precious metal continues its bull run, various sources told Platts this week.

THE most costly mine strike in South Africa’s history has compounded the longest global production shortfall in 14 years for palladium, just as car makers are set to use record amounts of the precious metal.

Output of the commodity used mostly to cut vehicle emissions will trail demand by a record high of

1.6-million ounces this year, after the strike idled 60% of supplies from the world’s second-largest producer, according to autocatalyst maker Johnson Matthey.

Prices have gained 22% since January and touched a 13-year high on Thursday. Analysts expect a further 11% increase in New York prices to $950/oz by year end, a Bloomberg survey showed.

Even though miners said on Thursday they had agreed on a deal "in principle" to end the strike, Morgan Stanley says output deficits will still last at least until 2018 as surging car sales from North America to China boost demand for catalytic converters.

Russia’s palladium exports to Switzerland climbed to an 11-month high in April, a month after the biggest supplier of the metal annexed Crimea in a standoff that sparked warnings of tougher sanctions from western nations.

Switzerland imported 2,158 kilograms (2.2 metric tons) of palladium from Russia in April, the most since May 2013, data sent today by the Swiss Federal Customs Administration show. That compares with 201 kilograms in March.

Gold is trading at the lowest level relative to palladium since 2004 as Bloomberg notes that prospects for a record shortage has lured investors to the metal used in pollution-control devices for cars amid concern that supply will be disrupted. As the chart below shows an oz of gold buys only 1.54 oz of palladium (less than a 3rd of the 5oz gold could buy in 2009) as supply problems (mining strikes and Russian sanctions) collide with demand expectations (the 'recovery' of the global car market). Despite GM's problems, record levels of channel-stuffed inventories, and a still stagnant consumer (showing no interest in big purchases), IHS expects a record level of auto sales this year at 85 million.

Norilsk Nickel, the world's largest palladium producer, would find ways around sanctions to sell the metal if its operations are targetted by Western governments, an executive at the company said on Friday.

Russia's seizure of Crimea has resulted in European Union and US sanctions on some Russian individuals and certain companies, but Norilsk has so far escaped unscathed.

But the United States and its European allies agreed on Thursday that Russia should face broader economic and industrial sanctions if the Kremlin meddled in Ukrainian elections later this month, a US official said.

"We hope that common sense will prevail," Anton Berlin, Norilsk marketing director, told Reuters in an interview. "In theory, even with the most pessimistic scenario Norilsk will find ways to sell its products... Plus, it's against the interests of our consumers there."

Norilsk accounts for 41% of global mined output of palladium, which is used in emissions-capping catalytic converters in automobiles and in jewellery.

--

Selling metal from Russian state stockpiles controlled by precious metals and gems repository Gokhran has been a key source of supply to the market for much of the last decade, but has been dwindling in recent years.

Gokhran has plans to start buying palladium and expects Norilsk to be the most likely seller, its head Andrey Yurin told Interfax news agency on Friday.

Berlin said he was surprised by Gokhran's plan, as the repository had been focusing on gold than on industrial metals in recent years.

However, GFMS analysts also expect platinum "to exceed the $1,700/oz level by the end of this year," so investors are hopeful that the white metal may see gains yet. The firm made its projection on the basis that rising platinum demand will be outweighed by significant decreases in mine supply and production.

Meanwhile, the average price of platinum's sister metal, palladium, is expected to see gains of 9 percent from 2013. GFMS believes it has already bottomed out for this year. "Robust demand is expected to propel the price of palladium towards a test of $930 before year-end. This year's average is forecast at $793 /oz," the firm said.

One reason why Palladium prices have jumped is because of the increase in the world demand for better and more stringent pollution controls. In particular India and China have lead the way in the growth of demand due to their increase in the amount of population driving cars and other vehicles on the road that require pollution controls in the form of catalytic converters.

China is home to the fastest-growing automobile market in the world. In China last year, the number of cars on the road jumped by nearly 40 percent. Sales of domestically produced automobiles soared by 55 percent. The number of cars is expected to increase at least 10-15% per year through the rest of the decade. The number could even be larger because the Chinese are discovering new car financing. Imagine what will happen when 1.6 billion people discover no money down, five-year car loans!!!

Platinum prices remain largely unmoved by the breakdown in wage talks aimed at ending South Africa’s mine workers’ strike. But palladium is trading near 32-month highs on fears of potential supply disruptions.

In contrast to platinum, palladium prices are continuing to move up, supported by tensions surrounding Russia’s involvement in eastern Ukraine with the backdrop of South Africa’s continuing mine strike adding further impetus. More than 80 percent of global palladium production is concentrated in South Africa and the Russian Federation, with Russia accounting for nearly half of total palladium supply.

Worries about a potential disruption to supply of the metal from Russia in retaliation to western sanctions at a time when South African mine production is entering its fifteenth week of outage is driving the price higher. But analysts report supplies of Russian palladium remain steady.