Platinum demand outstrips supply

Demand for platinum grew 5% to 6.5 million oz. in 2002, driven by strong sales to the Chinese jewelry market and greater use in autocatalysts, according to Platinum 2003, a report by London-based Johnson Matthey.

Supplies of platinum failed to keep pace with demand, rising by less than 2% to 5.97 million oz. As a result, the deficit in the platinum market widened to 570,000 oz.

Consumption of platinum in autocatalysts grew 17% last year, reflecting several factors, including: growth in the sales of diesel cars; higher production of light vehicles; tighter emissions regulations; and greater use of platinum-based catalysts at the expense of palladium.

However, purchases of platinum by auto manufacturers increased by less than 4% to 2.6 million oz., as some manufacturers satisfied a significant portion of their platinum needs from stocks.

Jewelry demand for platinum in 2002 expanded 9% to 2.83 million oz. Fabrication of platinum jewelry in China climbed, with demand rising 14% to 1.5 million oz. A recovery in Japanese purchases was due less to the availability of platinum from inventories following significant depletion of stocks in 2001 than to a rise in retail sales. In the U.S., a degree of restocking by jewelry retailers at the start of the year lifted demand for platinum, but purchases of metal by European manufacturers softened.

Industrial demand for platinum increased 2% to 1.59 million oz., led by demand for platinum-based catalysts from the chemical industry. Reduced investment in new manufacturing capacity caused a fall in purchases of platinum by the glass industry, while demand from electrical applications, such as computer hard disks, weakened slightly.

Net demand for platinum coins and bars from the investment sector edged lower in 2002; higher prices in the second half of the year depressed sales of new products and led to greater disinvestment in Japan.

Supplies of platinum increased 2% in 2002, rising to 6 million oz. South African output expanded substantially, but this was largely offset by a sharp fall in Russian sales. As a result, the deficit in the platinum market widened to 570,000 oz. Market stocks in Switzerland were heavily drawn down to help satisfy the shortfall, while the U.S. Defense Department sold close to 90,000 oz. from it national stockpile. Short-term lease rates responded to the increased market tightness, rising above 10% several times and touching 20% in October 2002.

The platinum price rallied in response to the high lease rates and the widening supply deficit. Sporadic weakness due to long liquidation on the Tokyo Commodity Exchange and New York Mercantile Exchange tended to be brief, and dips in the price swiftly attracted good bids for the metal on the spot market.

Market sentiment grew bullish in response to the fundamental strength of demand and to concerns about possible delays to mine expansions. In addition, a strong flow of speculative funds into hard commodities increased buying of platinum futures. As a result, the price rose from US$481 per oz. in January 2002 to a peak of US$607 per oz. in December.