Report: High platinum prices discourages demand for jewelry

Supply and demand for platinum are forecast to reach record levels in both 2006 and 2007, leaving the global market close to balance, precious metals refiner Johnson Matthey Plc said Tuesday.

Johnson Matthey estimates that the price of platinum will run between $980 and $1,200 an ounce for the next six months and create a market deficit of 20,000 ounces by year’s end, compared with 40,000 ounces the prior year and as high as 500,000 ounces in 2002, Reuters reports.

Investment funds will remain the main price driver, but if they do lose interest, the subsequent price weakness should prompt buying from the jewelry and autocatalyst sectors, platinum’s main end-users, the company said.

“If the level of fund interest were to decrease, driving prices lower, this should prompt some increase in buying from the jewelry sector and other industries, preventing the price from falling below $980 over the same period,” the company said in its report, “Platinum 2006 Interim Review.”

Platinum supply was expected to grow by more than five percent to 7 million ounces this year from 2005, led by expansions in South Africa, and was likely to rise further in 2007 to match any extra demand, the report said.

Demand was seen rising by about five percent to a record 7.02 million ounces in 2006, with growing share of diesel cars and the metal’s use in autocatalysts of heavier diesel vehicles were driving demand despite a weaker jewelry market.

“The outlook for the global jewelry market is less positive and will depend both on platinum’s absolute price and its price relative to other precious metals,” the report said.

Platinum is the best suited metal for diesel autocatalysts, while palladium is used in both petrol and diesel cars.

Platinum consumption by the autocatalyst sector is expected to jump by 15 percent to 4.38 million ounces in 2006 from the previous year, compensating an estimated drop of 11 percent in global jewelry demand to 1.74 million ounces, the report said.

The jewelry sector was expected to continue facing competition in 2007 in many markets, including China, from palladium and other white metals.

Stronger and volatile prices would result in an 11 percent fall in jewelry demand in China, the world’s largest market for platinum ornaments, to 780,000 ounces in 2006. The global jewellery sector would continue to face competition next year from palladium and other metals.

Meanwhile, palladium supply was expected to outpace demand by 1.63 million ounces in 2006, with total supply growing 0.8 percent to 8.48 million ounces from the previous year, mainly because of a production rise in South Africa, Johnson Matthey said.

But global demand is expected to drop by 5.7 percent to 6.85 million ounces this year because of an expected drop in jewelry demand.