Platinum demand for jewelry is expected to fall by year’s end

Purchases of platinum for jewelry manufacturing are forecasted to fall by 10% in 2004 to 2.20 million ounces, the lowest level of demand for seven years, according to a report from Johnson Matthey.

“The drop will be due to a sharp fall in purchases by the Chinese jewelry trade, which is largely a consequence of the strength of the platinum price,” states the recently released company report, Platinum 2004 Interim Review.

The London-based company, which specializes in the manufacturing refining, fabrication, and marketing of platinum and platinum group products, says demand for jewelry manufacturing in the U.S. will weaken because of greater competition from white gold. In North America demand for platinum for jewelry manufacturing is forecasted to fall by 5% to 295,000 ounces.

Demand for platinum for jewelry manufacturing in Europe will remain flat for the rest of the year, according to the report. Purchases of platinum by Japanese jewelers are expected to increase marginally as less stock is recycled.

Overall, platinum demand will grow by les than 1% and the platinum market will be very close to balance in 2004, according to the report.

Increased demand for platinum from the automobile and glass industries will largely offset weaker purchases of platinum by jewelry manufacturers to bring total demand to 6.47 million ounces—a rise of just 50,000 ounces in 2003.

Supply and demand. Although lower Russian sales of platinum are expected in 2004, higher output from Canada and South America will more than compensate and total supply is forecast at 6.43 million ounces—up 230,00 ounces in 2003, according to the report. This will significantly narrow the gap between supply and demand, leaving a market deficit of just 40,000 ounces.

The platinum price averaged $845 per ounce during the first ten months of 2004 (up 25% from the same period in 2003), supported by hedge fund and other investor buying and by firmness of overall demand. In 2005, Johnson Matthey predicts that supplies will expand faster than demand, so the market will move into surplus for the first time in six years. This will lead to a slightly softer platinum price, in the range of $760 to $880 an ounce for the next six months.