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Monday, May 16, 2011

Platinum and Palladium Jewelry Demand Fell Sharply in 2010

The purchasing of platinum by the worldwide jewelry industry fell by 14 percent to 2.42 million ounces in 2010 following an extremely strong 2009, according to a platinum group metals report by specialty chemicals and advanced materials company, Johnson Matthey.

Demand from the Chinese jewelry sector remained robust, at 1.65 million ounces, but this was significantly below the exceptional level of 2009, according to the report, Platinum 2011, released by the London-based company Monday. A combination of higher metal prices and full stock levels contributed to the decline. However, demand in China was substantially higher than in 2008, the last time platinum's price was at similarly high levels to 2010.

Meanwhile, global gross palladium demand in the jewelry sector fell by 20 percent to 620,000 ounces, largely due to a decline in manufacturing of palladium jewelry in China, which more than offset an increase in manufacture of palladium jewelry in Europe and North America. China by far is the largest market for palladium jewelry.
In line with global economic recovery in 2010, gross demand for platinum increased by 16 percent to 7.88 million ounces, according to the report. Global supplies of platinum increased by 0.6 percent to 6.06 million ounces, while recycling of platinum rose by almost a third to 1.84 million ounces. Resurgent growth in the automotive and industrial sectors was responsible for the platinum market being close to balance, with a surplus of only 20,000 ounces, compared with a surplus of 635,000 ounces in 2009.

Growth in automotive industry (where the precious metal is used for autocatalysts) and industrial demand is expected to continue and with limited expansion in supplies, Johnson Matthey said. It forecasts that the price of platinum will average $1,870 per ounce in the next six months, compared with an average of $1,762 during the six months to the end of April 2011.

“With positive supply-demand fundamentals and continuing global economic growth, platinum could trade as high as $2,000 in the period,” the company said. “If interest rates in key markets remain low, speculative investment interest should also support platinum's price.”

However, the company warned that “external shocks,” such as oil price rises or negative sentiment surrounding sovereign debt could once again prove to be a drag on the price. “Strong physical buying in China is likely to give support during price dips, meaning platinum is unlikely to fall below $1,750,” the company said.

Meanwhile, gross demand for palladium increased by 23 percent to reach a record high level of 9.63 million ounces in 2010. This was mainly due to strong purchasing by the automotive industry (used for autocatalysts) and physical investment sectors.

Demand in the automotive and industrial sectors is expected to continue to grow this year and even if there is no repeat of the exceptional levels of physical investment demand for palladium seen in 2010, the palladium market is likely to be in deficit again, Johnson Matthey said. It forecasts that the price for palladium will run between $715 and $975 over the next six months, with the metal trading on average at $825 in this period, compared with an average of $762 in the six months to the end of April 2011.

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