Johannesburg - JP Morgan has increased its outlook for palladium, saying prices should stabilise between $200 and $300 an ounce, according to a research note released yesterday.
The investment bank cited good demand from car makers and muted selling by producers in Russia. It did not say what the previous price outlook was, but in early July its expected average palladium price for 2003 was $195, and $198 for next year.
Palladium was fixed in London on Monday at a five-and-half month peak of $225 due to a wave of speculative buying. The spot price was little changed yesterday morning.
The precious metal has rallied by nearly 30 percent over the past few weeks, but the price is still $800 away from a peak of over $1 000 touched in January 2001.
Analyst Steve Shepherd said that with palladium prices remaining low compared with sister metal platinum, which has been trading above $700 an ounce, more car makers would switch to palladium since both metals could be used in anti-pollution systems for cars.
General Motors had already said it would make the change over time, he added.
"We expect demand to grow strongly as car makers increasingly opt for more cost-effective palladium-based catalysts for petrol-powered vehicles," Shepherd wrote.
The risk to palladium prices was that Russia would unleash its considerable stockpiles on the market, but this was not likely since Russia had responsibly managed its sales over the past year, Shepherd said.
Platinum, which roared to a fresh 23-year high on September 2 with a fixing at $714, had seen strong demand and appeared well supported above $670, he said.
The Chinese jewellery market could tolerate prices up to $760 an ounce now that authorities had cancelled VAT on the metal, but there was a risk to long-term demand if prices remained above $750 for any length of time.
"Supply continues to grow, but more slowly than the market was conditioned to expect by Angloplat, which is battling to reach its expansion targets," Shepherd said, referring to South Africa's Anglo American Platinum, the world's biggest producer of the metal.
Angloplat missed its platinum production forecast in 2002 by more than 500 000 ounces, or 8 percent of 2002 demand, the research note said.
This year would probably end in a similar way, Shepherd said.
Other positive factors for platinum included a pick-up in global economic activity, underpinning demand for vehicles; a recovery in Japan, helping jewellery demand there; and the recent power crisis in North America, which had highlighted the benefits of platinum fuel cells in static applications such as office buildings, Shepherd said.