GLOBAL PALLADIUM DEMAND DOWN IN 2006

After five years of growth, annual demand for palladium fell by 720,000 oz (22.4 tonnes) in 2006 to 6.635 million oz (206.3 tonnes). Although demand for autocatalysts was buoyant, demand for new metal from jewellery manufacturers fell sharply. Interest in palladium physical investment products also diminished.

Production of palladium from South Africa increased, but sales from state stocks by Russia were significantly lower than in 2005. Supplies accordingly fell to 8.060 million oz (250.7 tonnes), a decline of 345,000 oz (10.7 tonnes). Overall, the palladium market showed another large surplus of 1.425 million oz (44.4 tonnes).

PALLADIUM AUTO DEMAND ROSE BUT JEWELLERY DEMAND FELL SHARPLY

Autocatalyst demand was up by 150,000 oz (4.6 tonnes) to 4.015 million oz (124.8 tonnes) due to continuing replacement of platinum-based catalyst by palladium-based systems on gasoline vehicles in all regions.

However, demand for palladium in the jewellery sector fell by 435,000 oz (13.6 tonnes) to 995,000 oz (30.9 tonnes), with virtually all of the decline occurring in China. With much of the metal bought in 2004 and 2005 used to fill the distribution pipeline, the requirement for new metal in China was significantly lower last year.

2007 LIKELY TO SEE INCREASED DEMAND BUT ANOTHER SURPLUS

The autocatalyst market will again take more palladium in 2007, with greater use of the metal in gasoline and in diesel catalysts. The prospects for the palladium jewellery market are less certain but there is some potential for growth, as manufacturing and retail pipelines now appear to be full and future demand should more accurately represent retail sales. Primary production of palladium will rise and supply is likely to be augmented by sales from the large amount of Russian state stocks shipped to Switzerland at the end of 2006.

FUND INTEREST SHOULD SUPPORT PALLADIUM BETWEEN $320 AND $420.

Although the fundamentals of the palladium market are still weak, fund and other investor interest is likely to provide support to the palladium price. Exchange traded funds in palladium could help to sustain the price but are unlikely to absorb a significant proportion of the excess metal available. However, if investors continue to build long positions in palladium, the palladium price could rise to as high as $420 per oz during the next six months. Softening commodity prices would have a negative impact on palladium but, unless there is a dramatic sell-off, the price is not expected to trade below $320 over the period.

Platinum 2007 is Johnson Matthey's latest market survey of platinum group metals supply and demand. This report, widely regarded as the world’s principal source of information on platinum group metals, is free of charge. It is available in printed form on request from Johnson Matthey at the address below or can be viewed and downloaded at www.platinum.matthey.com/publications

Johnson Matthey is the world’s leading authority on the production, supply and use of platinum and the other metals of the platinum group. The company’s main activities include the manufacture of autocatalysts, platinum process catalysts and speciality chemicals and the refining, fabrication and marketing of platinum group metals.

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