(Kitco News) - Supply problems are supporting the platinum group metals, and palladium could start to outpace platinum as that market is closer to seeing a balance between supply and demand, according to one precious metals strategist.

Palladium has been lagging platinum so far in 2012, said Anne-Laure Tremblay, precious metals strategist at BNP Paribas. That is in part because the market has been focusing on the issues surrounding the South African mining industry which affects platinum more than palladium.

But palladium’s supply outlook is a bit more precarious, particularly after Norilsk Nickel said palladium output could fall 3% in 2012, she said. The firm produces about 40% of the world’s palladium, so their forecast for lower production is significant for the market. Based on this, global palladium output could fall 1% and she said palladium could be in a supply deficit for 2012-13, while platinum’s supply is expected to be in a surplus in 2012-13, even with output slowdowns in South Africa.

If the global economy starts to pick up, demand for palladium could rise further, especially since palladium use is skewed toward emerging markets and the type of autos they purchase there. This is particularly important since European growth is expected to be at best flat in 2012, she said. Tremblay spoke on a conference call Thursday.

“We are more bullish palladium versus platinum on demand ideas,” she said.

SIX POINTS DRIVING SOUTH AFRICAN WOES

There are six reasons why the platinum markets are focusing on the problems in South Africa, she said. They do affect palladium as well, but palladium production in the country is smaller that platinum.

First are work stoppages ordered by the Department of Mineral Resources under a decree known as Section 54. The stoppages are related to safety and usually occur after accidents, but Tremblay noted that more shutdowns are occurring even without accidents.

She gave the example of Anglo American Platinum, which said in the fourth quarter 2011 it had 32 Section 54 stoppages compared to about half as many in the third quarter.

This can affect output, but she said it affects different companies in different ways, depending on the amount of stockpiles built up.

Tremblay said there have been some ongoing discussions with the department and companies on the issue. Based on that, by the second half of the year, she said that these work stoppages may normalize. That doesn’t mean they will completely stop, but return to a more normal pace.

Second, the work stoppages have led to lowered platinum production in South Africa in general, as noted in recent fourth-quarter earnings reports by the major miners, she said. Because of that, she said at best South African output will be flat on the year for 2012, with little pick-up in production elsewhere in the world.

Source: http://www.forbes.com/sites/kitconews/2012/02/09/supply-problems-support-platinum-palladium-bnp-paribas/