LONDON – The platinum market is set for another surplus this year after recording oversupply of 110 000 oz in 2017, Johnson Matthey said in a report on Wednesday, although its sister metal palladium is tipped to see another deficit.

Platinum demand fell nearly 7% last year, with sharp falls seen in Japanese investment and Chinese jewellery buying as well as a slowdown in consumption by carmakers, who use the metal in catalytic converters, the company said.

Chinese jewellery buying was forecast to fall for a fifth year in 2018, it said, while autocatalyst demand was expected to keep shrinking. But it said a rise in industrial demand was likely to lead to a slight increase in overall demand.

"Before accounting for investment, we expect global platinum consumption to rise slightly," said Johnson Matthey, a leading manufacturer of vehicle catalysts.

"However, this will be matched by a modest increase in combined primary and secondary supplies, mainly due to rising recoveries from autocatalyst scrap," it said.

"Assuming that investment demand in 2018 is similar to last year, the market is likely to remain in modest surplus," it added.

The palladium market was expected to remain in deficit, it said. Automotive demand, which rose 6% last year to 8.424-million ounces, was expected to hit another record high next year, in line with a rise in gasoline vehicle output.

Supply, which declined 2% last year, was expected to rise slightly, but the market was set to remain in deficit after recording a shortfall of 629 000 oz last year.

"The market will almost certainly remain in deficit, but the size of the shortfall will be determined primarily by the investment sector, where demand has been negative for the last three years," Johnson Matthey said.

Palladium-backed exchange-traded funds have seen "heavy and prolonged" selling since their holdings peaked in late 2014, the company said. Investors had taken advantage of a sharp rise in prices to take profits, it said.

Palladium was the best performer among major precious metals last year, surging 56% to post its biggest annual rise since 2010. The metal extended gains in January to hit a record $1 138/oz, but has since retreated.

Platinum in contrast edged up less than 3% as concerns over diesel's shrinking market share weighed on prices. That lifted palladium into a premium over platinum for the first time since 2001, reaching more than $150/oz late last year.