Palladium sales from Russian state stocks are expected to fall 46 percent to 800,000 ounces in 2008, although a further 1 million ounces shipped in September have yet to be sold, Johnson Matthey said on Tuesday.

Peter Duncan, general manager for market research at Johnson Matthey, said the additional volumes were likely to be sold before 2010. He did not give a reason for this year's drop in state sales from Russia, the world's largest producer.

"In September, 1 million ounces of palladium was shipped from Russia to Switzerland, which we don't regard as having been sold yet," Duncan told reporters in Johnson Matthey's Moscow office. "It's possible more will be shipped."

Russia, where Norilsk Nickel dominates production, produces around half of the world's palladium, a precious metal used in jewellery, vehicle exhausts, chemicals and electronics.

Johnson Matthey, in its 2008 interim review released on Tuesday, forecast Russian state sales of palladium would drop to 800,000 ounces this year from 1.49 million ounces in 2007.

The company expects a global surplus of 320,000 ounces in 2008, much smaller than in previous years.

"In the last few years, Russian state stocks have created a surplus. If these stocks go away, this surplus will be removed and the market will be much more in tune with the fundamentals."

Russian palladium supplies from primary production are expected to drop to 2.94 million ounces in 2008 from 3.05 million ounces last year, Johnson Matthey said.

It forecast Norilsk's 2008 palladium output would drop slightly below 3 million ounces as first-quarter production was affected by severe weather conditions and the company's Nadezhda smelter underwent a refurbishment in the first half of the year.

PLATINUM

Russian platinum supplies are also expected to decline this year, to 855,000 ounces from 910,000 ounces a year ago, Johnson Matthey said. Norilsk's Arctic mines again account for the vast majority of Russian platinum supplies.

Russia is the world's second-largest platinum producer after South Africa. Sales by alluvial producers were forecast at around 175,000 ounces, reflecting the gradual depletion of deposits in the Russian Far East, Johnson Matthey said.

The biggest of these deposits is operated by Koryakgeoldobycha, controlled by billionaire Viktor Vekselberg, and Amur, a miner owned by Moscow-based Alliance Group.

Russian rhodium supplies were seen stable at 90,000 ounces.

Several companies, including Vekselberg's UralPlatinum Holding and Canadian miner Barrick Gold Corp, are developing new platinum group metals deposits on the Kola peninsula in northwest Russia.

These are potentially prospective and not big enough and too far from completion to influence world supply and demand, Duncan said.

"In the long term, they could replace declining ore grades at Norilsk. Unless there's a major discovery, they will never change the world supply and demand fundamentals," he said.

"It's not going to happen in the short term as it's not the right time to be investing in new PGM capacity, even if you have the credit available." – Interactive Investor