High prices hit platinum jewellery market

The demand for platinum jewellery declined by 8 per cent to 1 million ounces, the fourth consecutive fall in 2006, owing to lower demand from major consuming countries, including China.

The mounting prices of the precious metal were responsible for the decline in demand, according to a report published by Gold Fields Mineral Services (GFMS), an independent consulatancy company. The demand has shrunk by 39 per cent since 1999. The report further added that higher platinum prices took their toll on nearly every platinum market, with the greatest decline in absolute terms of 8 per cent seen in China.

Elsewhere, the fall was less in intensity. In Japan, it was 7 per cent down due to higher metal prices and rising competition. The country's platinum jewellery output last year was a third of that seen seven years ago.

The total platinum supply grew by 6 per cent to almost 7.9 million ounces on account of higher production in South Africa. The output elsewhere was flat year-on-year, though there was a modest rise in the scrap recovery from autocatalysts.

The greatest threat to the platinum jewellery market this year would be the continued rise in prices of the metal, the report cautioned. The GFMS forecasts the platinum price to break the $1,400 mark this year, leading to a further decline in demand for platinum jewellery.

The independent precious metals consultancy group has a positive outlook for the platinum prices in 2007 in view of the metal's limited stock and the increasingly inelastic demand. Whether these would be in a position to drive the prices up is to be seen, as the metal is projected to remain modestly surplus due to further growth in mine production and another year of contraction in demand in the jewellery segment. Despite this, the consultancy company expects the investor sentiment to remain supportive due to factors such as dollar weakness, inflation concerns and geopolitical tensions.

In 2006, the platinum market turned surplus after an extended period of deficits. Although the demand for platinum continued to rise, the overall increase was restrained by a further decline in jewellery fabrication. The rise in prices to fresh multi-year highs and volatility added to the situation.

Meanwhile, the demand for platinum from autocatalysts continued to rise, driven by increasing use in diesel engine applications. In Europe, the world's largest market for light-duty diesel engines, the demand rose due to the increased fitment of diesel particulate filters and higher production volumes of Euro-IV compliant vehicles. This was supplemented by the additional demand for heavy-duty diesel applications in North America, where new emissions standards came into force from January 2007. However, platinum's gains in diesel systems were more than sufficient to counter this, with the overall demand in autocatalysts rising by 6.5 per cent to a new high of 4.2 mllion ounces.