* Platinum set to average $1,465/oz in next 6 months
* Palladium expected to average $760/oz in next 6 months
LONDON, Nov 12 (Reuters) - The platinum market in 2013 is set for its biggest deficit in 14 years and continuing strong industrial and jewellery demand may widen the gap next year, although higher supply, stock overhangs and slow autocatalyst demand could limit price gains.
Refiner Johnson Matthey said on Tuesday in its Platinum 2013 Interim Review that the platinum market was expected to show a shortfall of 605,000 ounces this year from 340,000 ounces last year.
"The platinum market is expected to be in significant deficit for a third consecutive year in 2014," the industry benchmark report said. "However, this may not be sufficient to support higher prices as long as the market remains adequately supplied from above-ground stocks."
A rise in primary and secondary supply, coupled with slower autocatalyst demand and an overhang of above-ground stocks will prevent the metal returning to record highs of $2,290 an ounce hit in 2008.
"There are two issues for platinum at the moment - the first is that the market is liquid enough and there are above-ground stocks of platinum," JM principal analyst Allison Cowley said.
"The second factor is that fundamentals, like supply risks, have been increasingly less influential on price as the year has progressed as the market is much more driven by the economy and the gold price," she said in an interview.
JM expects to see platinum prices in a range of $1,360 to $1,580 over the next six months, with an average of $1,465 - only slightly above current prices at $1,430 an ounce.
Mining production will rise by 1.6 percent to 5.74 million ounces, with higher output mostly from Zimbabwe at 400,000 ounces. South African production is forecast to rise by around one percent to 4.12 million ounces in 2013. The country is the source of 75 percent of the world's platinum supply.
Production losses due to strikes in South Africa totalled around 100,000 ounces in the first half of 2013 and the balance is not expected to change, Cowley said.
Secondary supply is also seen increasing, with recovery of platinum from the autocatalyst sector rising by 12.8 percent to 1.28 million ounces, due to increasing availability of heavy duty diesel catalyst scrap, more efficient collection and destocking, research manager Lucy Bloxham said.
On the demand side, autocatalyst offtake will fall by 2 percent to 3.13 million ounces, due to weakness in the European and Indian diesel car markets.
Platinum is mostly used in diesel-powered engines to clean up exhaust emissions.
Platinum jewellery offtake is seen slowing slightly to 2.74 million ounces after last year's growth to 2.78 million ounces.
Jewellery demand is expected to increase in 2014, it said, pinpointing rising appetite from China.
Meanwhile a rebound in industrial demand by 12 percent to 1.79 million ounces in 2013 is being led by higher purchases from the glass industry. Platinum is used to make LCD screens for televisions and computers.
Net investment in the physically-backed exchange traded funds (ETFs) was on course to reach an all-time high of 765,000 ounces, it said.
Platinum investment has been an important feature of the platinum market this year, as investors in South Africa, the biggest platinum producer, were for the first time allowed exposure to a physically-backed ETF. A new platinum product launched by Absa Capital in Johannesburg in April pulled in 770,000 ounces of metal since inception.
"Clearly demand for the platinum ETF this year was exceptional because there was pent-up demand for a physical platinum product in South Africa and that has been presumably satisfied," Cowley said.
"Going forward it is fair to say that ...it is not going to be as big in 2014."
China's demand for cars and lower Russian palladium sales should keep the global palladium market in deficit, Johnson Matthey said.
Continued recovery in demand from carmakers and tighter emissions standards for gasoline light duty vehicles - palladium is mostly used in gasoline-powered engines - will keep palladium in a deficit of 740,000 ounces, compared to a 1.15 million ounce shortfall in 2012.
Johnson Matthey predicted a high for palladium of $815 an ounce, a low of $680 and an average of $760 in the next six months.
A return to boom conditions in the Chinese car market will lift global palladium demand in autocatalysts by 4 percent to 6.97 million ounces, it said.
Johnson Matthey expects Russian palladium stock sales to slide to around 100,000 ounces this year from 250,000 in 2012.
Inflows of palladium exchange-traded funds (ETFs) are forecast to rise by 75,000 ounces in 2013, compared to 470,000 ounces of net investment in 2012.