By Peter Hobson and Eileen Soreng
LONDON/BENGALURU (Reuters) - Palladium will cost on average more than twice as much as platinum this year, but that premium will narrow in 2021 as prices slip from record highs and platinum gains ground, a Reuters poll showed on Tuesday.
The sister metals are both used by automakers to reduce harmful vehicle emissions. Platinum is also used to make jewellery.
Palladium was once by far the cheaper of the two, but chronic under-supply has pushed prices up by 400% since early 2016, while the over-supplied platinum market has struggled to rise from decade lows.
"Industrial demand (for palladium) is relentless," Rhona O'Connell, an analyst at brokerage INTL FCStone, said.
Spot palladium <XPD=> this month briefly zoomed above $2,500 for the first time as power outages in top producer South Africa disrupted output, contributing to a supply squeeze.
The median forecast returned by 26 analysts and traders this month was for prices to edge down from those levels, averaging $2,000 this year and $1,700 next year. <COMMODS-PALL>
"Palladium prices will start declining if the risk of black-outs in South Africa eases," said Daniela Corsini at Intesa Sanpaolo.
Even if prices trend lower, the two predictions for 2020 and 2021 would be the highest annual averages ever.
(Graphic: Platinum and palladium prices - https://fingfx.thomsonreuters.com/gfx/ce/7/8283/8264/PLAT%20PALL%20POLL%20Q1%202020.jpg)
For spot platinum <XPT=>, currently trading around $1,000 an ounce, the median forecast was for averages of $948 this year and $1,013 next year. <COMMODS-PLAT>
These would be the first two increases in average annual prices since 2011. Automakers use platinum mainly in diesel engines whose popularity has fallen in recent years, and use of the metal in jewellery has also declined.
The palladium forecast for this year was $450 higher than in a similar poll conducted three months ago, which did not include a prediction for 2021. For platinum, the forecast for 2020 was $29 higher than three months ago.
They imply that palladium will cost on average $1,052 more than platinum this year - its biggest premium ever - and $687 more in 2021.
The roughly 8-million ounce a year platinum market will be over-supplied by 557,000 this year and 670,000 next year, while the 10-million ounce a year palladium market will be under-supplied by 883,000 ounces this year and 727,000 in 2021, said Saida Litosh at consultants Refnitiv GFMS.
Many analysts expect automakers to swap some palladium for platinum to save money - higher prices for emissions-cutting precious metals cost auto companies $18bn over the past year, analysts at Citi said this month.
But replacing palladium with platinum is technically complex and there has been little sign so far that it is happening.
Platinum's best hope for price rises instead comes from its tendency to move in parallel with gold <XAU=>, the price of which is rising as investors seek insurance against economic and political uncertainty, said Litosh at GFMS.
"It remains difficult to make a strong case for platinum upside beyond any positive spill-over from gold," she said.
(Reporting by Peter Hobson)