Platinum Demand to Scale Record Highs in 2002

World demand for platinum was forecast to climb 2.9 percent to a record 6.37 million ounces in 2002, spurred on mainly by Chinese jewellery demand, metals refiner Johnson Matthey  said.

Although use of platinum in autocatalysts was expected to continue growing, purchases of the metal by the automobile industry will stabilize.

"This paradox is accounted for by the significant use of inventories of platinum by some US auto manufacturers, who had built up stocks over the previous two years," Johnson Matthey said in its Platinum 2002 Interim Review.

Platinum is used in diesel and gasoline-engined vehicles to cut down on exhaust emissions and meet tougher environmental standards set by the European Union and the United States.

The refiner said greater use of platinum-based catalysts for gasoline vehicles, at the expense of palladium dominant systems would continue to have a positive impact on consumption.

Growing production of diesel cars in Europe would be an important factor as they only use platinum-based catalytic converters. "Two out of every five cars sold in western Europe are now diesels," the refiner said.

Total demand of platinum for the autocatalyst sector was seen largely stagnant in 2002 at 2.52 million ounces, versus 2.53 million ounces in 2001.

Sales to European auto makers are forecast to rise to 1.25 million ounces, up 17 percent on 2001, but were seen slumping in North America to 480,000 ounces versus 795,000 in 2001.

Jewellery demand was expected to grow by 230,000 ounces to 2.78 million in 2002, after falling the previous year, as the Chinese industry looked set to once again purchase record volumes of platinum.

Further growth potential in 2003 would be dependent on how much retailers' profits were squeezed.

"They have to be able to make a reasonable margin," Matthey's Market Research and Planning Director Michael Steel told Reuters. "Demand tends to start dropping off when prices move towards $600 (an ounce)," he added.

Spot platinum prices peaked at $644 in January 2001 but subsequently slumped back to nearly $400 eight months later. Since then prices have moved steadily higher and are currently reattempting a break above the $600 level.

The rise in price, coupled with weaker consumer confidence in other major jewelry consuming nations -- Japan, U.S. and Europe -- could dampen demand there.

But despite the current cloud of global uncertainty, Matthey was upbeat for 2003 prospects, looking for more growth in the autocatalyst sector led by a rebound in North America, after the inventory drawdown this year.

On the supply side, sales from leading producer South Africa were set to rise to 4.44 million ounces in 2002, from 4.10 million previously.

Steel said continued expansion was based on beliefs of continued good growth in the Chinese jewelry sector.

"Jewelry provides a safety valve for platinum which palladium did not have," he said.

That would be offset by a forecast fall in Russian supplies to 950,000 ounces, compared with 1.3 million in 2001.

World platinum supply would increase only marginally to 5.88 million ounces in 2002 from 5.85 million, falling short of demand by 490,000 ounces.

"This deficit has been evident in tightening physical liquidity and the strengthening platinum price," Matthey said.

Prices were forecast to trade between $550-$650 an ounce over the next six months, compared with $480-$580 over the previous period.

World palladium demand was forecast to drop 28 percent to 4.88 million ounces in 2002 -- dipping below the five million level for the first time since 1994.

This was mainly due to to a sharp fall in its use in autocatalysts, while dental and electronics demand would only see small recoveries despite much lower price levels.

Auto industry demand grew significantly from the mid-1990s through to early 2001, which due to a supply disruption from Russia, took prices over $1,000 an ounce and forced companies to substitute the metal with the then much-cheaper platinum.

Net demand from the autocatalyst sector was seen dropping to 3.16 million ounces, compared with over 5.0 million in 2001.

However, supply was also set to slump by over 2.3 million ounces to 4.91 million, as main producer Russia remained out of the spot market.

"The market in total has contracted, but is not as far out of balance as expected. The Russians have cut back enormously...which has kept the market weak, but finely balanced," Steel said.

Russian supplies were seen falling a massive 63 percent to 1.6 million ounces in 2002, while output from South Africa and North America was seen growing.

Palladium prices were seen trading between $250-$330 an ounce over the next six months. Reuters