Top global producer Norilsk Nickel (GMKN.RS) is expecting little change in its palladium output in 2013, as robust demand and lower supply indicate a deficit this year, a senior Norilsk executive said.

Norilsk's steady production forecast comes at a time of escalating supply concerns in the palladium market, due to falling state reserves in Russia and fears over output in South Africa, which is the world's second-largest palladium producer. Supply jitters have increased since Anglo American Platinum (AMS.JO), also a palladium producer, said Jan. 15 it was suspending production at several mines in South Africa.

"In 2013, palladium use in industrial applications will continue to significantly exceed the annual volume of mined and recycled palladium," Anton Berlin, head of marketing at Norilsk's sales subsidiary Normetimpex, said in response to questions from Dow Jones Newswires.

Norilsk produced around 2 million troy ounces of palladium in the first nine months of 2012, according to the latest available production data. For the full year 2012, Norilsk's output will account for 42% of the world's mined palladium supply.

Palladium prices have gained 7.2% since the start of the year due to bullish forecasts and are trading around $752 a troy ounce as investors anticipate further upside for the metal, which is mostly used in autocatalysts.

The Russian stockpile has been a key source of supply to the palladium market in recent years, but sales from this stock will likely fall below 100,000 oz in 2013, Mr. Berlin said, without giving a comparison with 2012. No stockpile sales are expected after 2014, he added.

In 2011, shipments from the stockpile totaled 775,000 oz, according to analysis from specialty metals chemicals company Johnson Matthey. In a review published in late 2012, Johnson Matthey forecast stockpile sales would fall by over 500,000 oz compared with the previous year.

"Discontinuation of Russian deliveries will shift the market to a state of substantial statistical deficit. The tightness in the markets would...become intense over time, eventually resulting in further price appreciation," Mr. Berlin said.

Given a lack of new palladium production coming on-stream and limited recycling activity, the only other alternative for securing palladium supply is from Western investor stocks, he said.

At the same time as supply is stagnating, demand for palladium for use in industrial applications will hold firm, he said. Industrial demand rose by 5% in 2012 as higher vehicle production in North America and Japan offset slower production in Europe, he said.

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