LONDON, May 16 (Reuters) – Improving demand and lower supply will help palladium and rhodium swing back into deficit this year and reduce platinum’s surplus, consultants Metals Focus said on Monday.

The three precious metals are used by automakers in engine exhaust systems, where they neutralise harmful emissions. Platinum is also used in other industries and for jewellery and investment.

Demand from auto makers, which are beginning to overcome a shortage of semiconductors that forced them to cut production, will lift demand for all three metals, Metals Focus said.

On the supply side, palladium and platinum production could be constrained by major producer Russia’s conflict with Ukraine, while output from another key producer, South Africa, will fall, it said.

Logistical issues and limited automotive scrap feedstock will also impede supply from recycling.

Metals Focus said the roughly 10 million ounce a year palladium market should swing back from its first surplus in 10 years in 2021 to a deficit of 521,000 ounces in 2022 and that prices would average $2,290 an ounce this year.

Palladium XPD= jumped to a record high of $3,440.76 an ounce earlier this year and now costs around $1,930 an ounce.

The surplus in the nearly eight million ounce a year platinum market XPT= is expected be 40% lower than in 2021 at 477,000 ounces this year, while prices will average $990 an ounce, Metals Focus said.

It predicted a deficit of 30,000 ounces in 2022 in the one-million-ounce rhodium market, included in the Metals Focus report for the first time.

Rhodium’s annual average price RHOD-LON will fall 17% from last year to $17,750 an ounce in 2022, the report said. Rhodium currently trades around $15,600.