By Nicholas Larkin Nov. 17 (Bloomberg) -- Demand for platinum jewelry is surging to a six-year high after a plunge in prices spurred record Chinese consumption, compensating for the weakest usage by carmakers since 2000, Johnson Matthey Plc said. Supply will outpace demand by 140,000 ounces, compared with a shortfall of 240,000 ounces last year, after a 33 percent drop in demand from autocatalyst makers, London-based Johnson Matthey said in a report. Chinese jewelry demand will weaken next year while rebounding economic growth will boost vehicle production and may move the market back to a deficit, Johnson Matthey said. “We’ve had a very, very difficult year for autocatalysts, and at the same time we’ve had a very good year for jewelry,” Rainaldo O’Meara, the company’s market research manager, said in an interview in London. Chinese jewelry “restocking as a result of the drop in price last year has taken place and has come to its full limit. You’ll get natural growth as opposed to this slightly artificial growth.” Platinum soared 54 percent this year, rebounding from a 39 percent slump in 2008, as investors bought precious metals to hedge against a weaker dollar and the threat of inflation. The deepest global recession since World War II hurt industrial demand and bolstered investors’ holdings in exchange-traded funds backed by the metal. Platinum for immediate delivery was at $1,438.50 an ounce by 7:30 a.m. local time today. Prices may climb to $1,550 in the next six months if the dollar weakens and investor and industrial demand strengthens, Johnson Matthey said. The metal may drop to $1,280 if the dollar rebounds or gold prices drop. Total Demand Total demand will fall 4.4 percent to 5.915 million ounces this year, the lowest since 2000, as autocatalyst usage slipped to 2.48 million ounces. Global jewelry demand will probably climb 79 percent to 2.45 million ounces, as Chinese jewelry consumption more than doubles to 1.75 million ounces. Palladium’s surplus will widen 22 percent to 655,000 ounces this year as autocatalyst usage slips 13 percent to a four-year low of 3.895 million ounces, Johnson Matthey said. Total demand will fall 3.8 percent to 6.52 million ounces, the lowest since 2003. Palladium is used more in gasoline-fueled vehicles. “All platinum-group metal demand has suffered from lower vehicle production, but palladium has been supported to some extent by the scrappage schemes tending to favor gasoline cars,” said Jeremy Coombes, general marketing manager at Johnson Matthey. “Once demand starts to pick up, the industry is generally going to be pretty low on stock and is going to have to put in orders for components.” Palladium Doubles Palladium traded at $373.77 an ounce in London today and has doubled this year. The metal may climb to $390 in the next six months if vehicle production recovers and investment demand is maintained, Johnson Matthey said. Prices may drop to $290 if the dollar strengthens and gold and platinum decline. Total palladium supply will fall 1.8 percent this year to 7.175 million ounces, while platinum supply will increase 1.9 percent to 6.055 million ounces, Johnson Matthey said. The researcher expects sales of palladium from Russian state stockpiles to be about 960,000 ounces this year. Russian palladium state stocks are “a grey area,” Coombes said. “If the Russian government was not selling stock, then the current production of palladium from the Russian end of the mines would be insufficient to meet current demand.” Investment demand for platinum will gain 14 percent this year to 630,000 ounces, while palladium investment will jump 51 percent to 635,000 ounces. Exchange-Trade Funds Precious metal holdings in exchange-traded funds have climbed to records this year as investors sought an alternative to a weakening dollar. Potential platinum- and palladium-backed ETFs in the U.S. may add 200,000 ounces of demand for each metal in the first year after they begin, Johnson Matthey said in the report. ETF Securities Ltd. plans to start such funds. Rhodium’s surplus will increase almost seven-fold to 171,000 ounces this year, the most since at least 1985, as demand drops 18 percent to 548,000 ounces because of weaker auto sales and as supply increases 3.5 percent, Johnson Matthey said. The metal has climbed 98 percent this year to $2,475 an ounce, according to prices from Johnson Matthey on Bloomberg. “The auto companies have been trying very hard to take the rhodium content of catalysts down and they’ve effected that,” Coombes said. “When there’s a recovery in car production there’ll be a pick up in rhodium demand.” Consumption of ruthenium, used for coating computer hard disks, will fall 82,000 ounces to 583,000 ounces in 2009 because of lower electronic and chemical sales, Johnson Matthey said. Iridium demand will slip 23,000 ounces to 79,000 ounces on lower electronic and spark-plug usage. To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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