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Norilsk Nickel expects autocatalyst metal palladium to be in a deficit in 2012 due to sharply lower Russian supplies, the world's biggest palladium producer's marketing chief said on Thursday.

In addition, global mine output has slowed due to rising production costs and insufficient mining capacity, Norilsk's marketing director Anton Berlin told Reuters on the sidelines of an event held by ETF Securities in New York.

The stockpile owned by Russia, the world's No. 1 supplier of the industrial metal, is dwindling, he said.

"We believe that the stock is almost depleted," Berlin said.

Berlin said his view was based on a Russian media report earlier this year. The report cited a Ministry of Finance source who forecast Russian exports to be 150,000 ounces annually for both 2012 and 2013, which would be small amounts.

Russia does not disclose the size of its palladium stockpile. Market speculation about any alleged Russian palladium shipment or the lack of it often leads to volatile price swings.

In May, Russia's Gokhran state repository said it had sufficient palladium stocks to continue exports in 2012, and it also planned to melt down some reserves to improve their quality.

"For 2012, we will be in a deficit. The biggest driver is the government stockpile, which is being withdrawn from the equation. It's an important part of the supply," Berlin said.

Platinum group metals (PGM) specialist and refiner Johnson Matthey said in November that palladium will enter 2012 in a deficit. That is in contrast to 2011, which has the biggest market surplus in four years as supply exceeded demand.

Berlin said he expects the growth of palladium consumption to roughly double that of mine supply during the next five to 10 years.
Falling industry supply is highlighted by the fact that it takes about 18 months to turn the raw metal ore into refined palladium, he said.

In addition, some palladium mining companies are not profitable or operating very close to the cost of production after the metal's recent pullback.

Palladium <XPD=> traded at around $625 an ounce on Thursday. Year to date, it is down more than 20 percent and down from a high of near $850 an ounce set in early August. The metal was among the top commodity performers in both 2009 and 2010.

On the state of the global auto industry, Berlin said that it has recovered from the economic crisis of 2008. Norilsk is forecasting a 5 percent industry growth.

Consumption by the auto industry represents more than half of global demand in 2011.

Berlin said that industrial demand could receive a boost if sales of new products such as Blue-ray DVDs improve. Each Blue-ray DVD consumes a trivial amount of palladium, he said.