Platinum falls and palladium rises in 2005 for jewelry production

Anthony DeMarco, JCK Senior Editor -- JCK Online, 11/15/2005 2:35:00 PM

The increasing price of platinum is causing the precious metal to lose some of its luster within the jewelry industry, according to the most recent information published by platinum group metals manufacturer Johnson Matthey. Meanwhile, palladium may take up some of the slack at least in China as demand for the metal in jewelry production is soaring.

Jewelry demand for platinum is forecasted to drop by more than 6 percent to 2.02 million troy ounces, said Mike Steel, Johnson Matthey director, during a briefing in New York City on Tuesday, which coincided with the release of the company's report, "Platinum 2005 Interim Review." Chinese purchases for the precious metal is expected to fall by 10 percent in 2005—the third consecutive year that demand has dropped for the precious metal in China, according to the report.

In North America, platinum purchases by the jewelry trade are expected to fall by 10 percent to 260,000 ounces in 2005, the London-based company said in its report. In Japan, platinum purchases for jewelry is expected to decline in 2005 from 560,000 ounces to 550,000 ounces. In Europe and the rest of the world, platinum demand for jewelry is expected to be flat in 2005.

In the United States and Europe, demand is strong in the upper ends of the market while losing ground to white gold in the market's lower end. In Japan, platinum retains a strong hold on the engagement and wedding sectors of the industry but is losing ground to white gold in the non-bridal side of the market.

The reason for the drop in platinum for jewelry production, particularly in China, is its high cost, Steel said. The precious metal is currently trading at $968 per ounce and Johnson Matthey is forecasting it to trade between $890 to $1,030 per ounce in the next six months.

Overall, demand for platinum is forecasted to rise by 2 percent for 2005 to 6.71 million ounces, fueled by its use as an autocatalyst, which is used in catalytic converters for automobiles, and other industrial applications. Demand for platinum is expected to slightly outstrip supply for the fifth consecutive year.

Meanwhile, palladium is becoming an affordable white metal alternative to white gold and platinum in the production of jewelry, particularly in China, Steel said.

The manufacture of jewelry will be the second-largest application for palladium in 2005 as demand is expected to soar to 1.43 million troy ounces, an increase of more than 55 percent when compared with 2004. This increase is fueled by a 70 percent increase in jewelry demand in China to 1.2 million ounces, which Steel said is a conservative estimate. Jewelry demand for palladium in the rest of the world is expected to be slightly higher than the previous year.

Steel said the Chinese are attracted to palladium's affordability (it currently trades at about $250 per troy ounce), price stability, whiteness, association with platinum, and purity (up to 99 percent pure). "It's about the purest jewelry metal there is and that's a positive," Steel said.

Steel explained that the appeal for platinum jewelry in China is largely in the country's second and third tier cities. In Shanghai and Beijing, platinum remains the metal of choice.

Overall, Johnson Matthey is forecasting palladium to grow by 6 percent to 6.8 million ounces in 2005 and trade in the rage of $190 to $270 per ounce for the next six months.