Platinum Jewelry Remains Resilient

The high cost of the precious metal has not significantly affected jewelry demand

Anthony DeMarco, Senior Editor -- JCK-Jewelers Circular Keystone, 11/13/2007 10:23:00 AM

The increasingly high cost of platinum has not significantly affected jewelry demand, according to Johnson Matthey's mid-year report. Meanwhile, the palladium jewelry market in the U.S. is "slowly growing," while jewelry demand in China (palladium's largest jewelry market) has declined.

Platinum. Global demand for new metal from platinum jewelry manufacturers is expected to fall in 2007 by 1.5 percent to 1.595 million ounces, according to the "Platinum 2007 Interim Review," released Tuesday by the specialist materials company. This figure does not include finished platinum jewelry imported into the U.S. from overseas manufacturers or the recycling of old jewelry stock in China and Japan.

"Consumer interest in platinum jewelry is still strong the effects of high price is uncertain," Ellen Zadoff, Johnson Matthey Precious Metals Division North American market research manager, said during a review of the Platinum Group Metals forecast Tuesday in New York City.

In North America, net platinum fabrication demand for jewelry in 2007 is expected to drop by 5,000 ounces to 235,000 ounces, reflecting the high cost of the precious metal—which is currently trading at about $1,400 per ounce, as demand continues to exceed supply, with expectations for further price increases.

The report says this high cost is creating stress on the retail level, particularly with men's wedding bands. In response, U.S. companies are importing more finished jewelry from lower-cost manufacturing centers, particularly in Asia.

In Japan, jewelry demand for platinum is expected to fall by 55,000 ounces to 305,000 ounces.

In China, demand for platinum for jewelry fabrication is expected to increase by 20,000 ounces to 780,000 ounces based on the strength of country's economy and a growing consumer appetite for the precious metal.

"China still has a healthy appetite for jewelry, which reflects a healthy economy," Zadoff said.

Europe is another strong market with platinum jewelry demand expected to grow by 15,000 ounces to 205,000 ounces in 2007, according to the report. The precious metal has retained its popularity in the bridal market.

Palladium. Meanwhile, global demand for new palladium for jewelry manufacturing is expected to fall by 250,000 to 745,000 ounces in 2007.

In China, demand is expected to fall by 260,000 ounces to 500,000 ounces as demand for the metal has been offset by the use of recycled jewelry and the purchase of palladium refined from industrial scrap.

In addition, purity is important in China and much of 950 palladium (95% palladium) jewelry being returned is being reused to create 990 palladium (99% palladium).

Palladium jewelry is also a product that is favored in the smaller cities and rural areas. It has yet to be marketed in China's largest cities.

"Palladium still hasn't penetrated the markets of Shanghai and Beijing," said Timothy Murray, general manager, U.S. Operations, Precious Metals Marketing.

"Growth in consumption for jewelry in China is possible," Zadoff added. "If recycling drops and marketing increases."

In North America, palladium demand for jewelry is expected to rise by 10,000 ounces to 50,000 ounces in 2007, according to the report. Men's wedding rings, right now are the most popular palladium item in the U.S., but manufacturers are starting to churn out variety of designs that include precious gems.

Murray defined the trend toward palladium as "slowly growing."

In Europe, demand for palladium is expected to rise by 5,000 ounces to 50,000 ounces. Johnson Matthey estimates that about two-thirds of this metal is used as a component in white gold alloys, a market that is growing because of the popularity of white metals in general and European anti-nickel legislation. However, palladium jewelry was introduced to the European market this year, and Johnson Matthey says that if manufacturers follow through, demand for the precious metal should increase.

Supply, demand, price. Global demand for platinum (which is also used for autocatalysts and industrial uses) is forecasted to rise by 195,000 ounces to a record 6.925 million ounces in 2007.

Meanwhile, supply is expected to be lower than in 2006 by 135,000 due to production problems from the main producing regions--South Africa, Russia, and North America. This will result in an expected deficit of 265,000 ounces. Zadoff, citing "strong fundamentals and rising gold prices," said the price of platinum could be as high as $1,575 during the next six months—particularly if the U.S. dollar continues to slide.

For palladium (which is also used for autocatalysts, dental equipment, and electronics), the story is different. Demand is expected to rise by 135,000 to 6.605 million ounces; while supply should reach 8.32 million ounces in 2007—leaving a surplus of 1.715 million ounces. Johnson Matthey said fund buying could boost the price of palladium to $420 an ounces over the next six months.