LONDON -(Dow Jones)- HSBC has cut its 2011 platinum and palladium price forecasts but upped its outlook for the period from 2012 to 2018, citing expectations that the market will move from a modest surplus into deficit.

The bank said Friday it had cut its outlook for platinum for the year to $1,825 a troy ounce from $1,850/oz previously, and reduced its palladium outlook to $785/oz from $825/oz.

Noting extreme price volatility this year, the bank said platinum and palladium hit their lows for the year just after the Japanese earthquake and tsunami took a severe toll on auto production in the Asian country. The two metals are used in autocatalysts.

"Although prices subsequently recovered, they remain highly volatile, having moved lower for much of the summer in reaction to sluggish economic data, before rallying in line with the surge in gold prices," HSBC analyst James Steel said.

However, auto and industrial demand is set to improve next year, outstripping mine supply and moving the markets into deficit from surplus in 2011, Steel noted.

A deficit of 153,000 tons of platinum is forecast for next year along with a palladium deficit of 303,000 tons.

The bank raised its 2012 platinum forecast from $1,750/oz to $1,875/Oz and its 2013 forecast for the metal from $1,650/oz to $1,825/Oz. It also increased its long-term platinum price forecast for the period from 2014 to 2018 by 10.8% from $1,625/oz to $1,800/Oz.

HSBC also increased its 2012 palladium forecast from $750/oz to $810/Oz, its 2013 palladium forecast from $725/oz to $825/Oz, and its long-term palladium forecast by 21% from $700/oz to $850/Oz.

Steel said the level of Russian stockpiles "is the key unknown" in the market, with the bank reducing its 2011 forecast of Russian stock draws to 400,000 ounces from 500,000 ounces this year. It also expects further declines in stock draws, to 300,000 ounces in 2012.

Investment demand, notably in the exchange-traded funds, is nonetheless expected to suffer following years of rising demand. The bank expects ETF demand for platinum to be 400,000 ounces in 2011, falling to 350,000 ounces next year. Investment in non-ETF products like small bars and coins is also set to fall this year, from 225,000 ounces to 150,000 ounces, and will be sustained at around 140,000 ounces next year, HSBC said.

For palladium, investment demand is "unlikely to be more than a fraction of the huge increase," seen last year, Steel said, with the bank cutting its forecast of 2011 ETF offtake to 100,000 ounces from 400,000 ounces. "For 2012, we estimate a modest recovery in ETF demand, to 150,000 ounces," he added.

Copyright © 2011 Dow Jones Newswires

Read more: http://www.foxbusiness.com/industries/2011/09/02/hsbc-cuts-2011-platinum-palladium-forecasts-upgrades-12-18-outlook/#ixzz1WsC6kUm6