Global demand of platinum for jewelry fell by more than 13% in 2003

Platinum supply and demand are expected to be more or less in balance in 2004, ending a run of five successive years of supply deficit, according to Johnson Matthey’s Platinum 2004, released Monday.

In 2003 the platinum market was 280,000 ounces (8.7 tons) in deficit, as supply of the precious metal fell short of expectations, according to the annual report. Supplies grew by 4.5% to 6.24 million ounces (194.1 tons), although some mine expansions in South Africa fell behind schedule. In 2004 total platinum supply is projected to rise more strongly as expansion projects gain momentum.

Global demand for jewelry fell by more than 13% to 2.44 million ounces (75.9 tons) in 2003 as high metal prices discouraged fabrication in China, the largest market. Sales in Japan were also down, impacted by weak consumer demand and increased recycling of metal from stocks. Total jewelry demand may fall again in 2004, although much will depend on the reaction of Chinese buyers to platinum price movements, the report states.

The price of platinum, strongly influenced by fund buying, reached a 24-year high of $937 in April 2004. Subsequently the funds closed out some of their long positions, causing a sharp price correction. With the fundamentals easing, the short-term price outlook will mainly depend on whether investors decide to rebuild or further reduce their interest in platinum. Johnson Matthey therefore forecasts that platinum will trade between $780 and $920 in the next six months, with the large spread reflecting the potential for market volatility.

World demand for platinum edged up by less than 1% in 2003 to 6.52 million ounces (202.8 tons). It was supported by auto industry purchases, which jumped by 23% to a record high of 3.19 million ounces (99.2 tons). US auto companies returned to the market for almost all their metal requirements, having run down stocks in 2002. Rising sales of diesel cars in Europe and the retrofitting of catalysts to heavy-duty vehicles in Japan were also factors. Growth in autocatalyst demand in 2004 is likely to be much less pronounced.

Palladium. In 2003 the palladium market surplus widened to 1.19 million ounces (37 tons), as palladium supply surged by 23% to 6.45 million ounces. Russian supply increased by just over 1 million ounces, with Norilsk Nickel selling all of its production. Palladium has limited uses in jewelry manufacturing.

Demand was 9% higher than in 2002 but still lacklustre, coming in at 5.26 million ounces (163.6 tons), the third lowest total in a decade, the report states. It is likely to improve again in 2004, mainly as a result of a higher level of purchasing by the US auto industry, which again depleted its stocks during 2003.

The palladium market is expected to remain oversupplied in 2004, with demand growth largely offset by a further expansion in supply from both mines and the recovery of metal from scrapped autocatalysts.

The price of palladium has been supported by speculative interest, which drove it up to $333 in April 2004. However, the large positions built by hedge funds and speculators have made the market vulnerable to major downward corrections. Johnson Matthey expects palladium to trade between $200 and $340 over the next six months.