20 Nov 2009 10:30

China's platinum demand may slide in 2010, but outlook remains positive - Johnson Matthey plc

Interfax spoke with United Kingdom-based supplier and user of platinum Johnson Matthey plc regarding the company's outlook on Chinese platinum demand for the remainder of 2009 and 2010.

By Li ChunlanShanghai. November 20. INTERFAX-CHINA - China was the world's largest platinum consumer in 2009, and has played a pivotal role in helping to support the international platinum price. However, China's consumption of the precious metal is expected to slide in the coming months, as a result of slowing jewelry demand, according to representatives of Johnson Matthey plc.

Global market prices for platinum have increased from around $900 per ounce at the beginning of 2009 to the current price of approximately $1,400 per ounce, largely driven by Chinese demand.

Chinese platinum demand will reach 2.04 million ounces in 2009, up 66.12 percent year-on-year, accounting for 34.38 percent of global demand this year, according to a Johnson Matthey report.

"The majority of China's platinum demand is attributed to the jewelry making industry, which grew by an incredible 105.88 percent in 2009, year-on-year. Chinese jewelry makers and retailers built up large platinum stocks when platinum prices were low earlier in the year," according to Peter Duncan, the general manager of Johnson Matthey's market research department.

"Currently jewelers and retailers have nearly full platinum stocks and will most likely not replenish them as actively next year as they did at the beginning of 2009. However, underlying demand will still exist, so we expect total platinum demand to slide only slightly in 2010," Terry Harris, Johnson Matthey's Asia region sales manager, said.

The current international market price for platinum hovers around $1,400 per ounce, close to the current gold prices of around $1,140 per ounce, which Duncan says could increase jewelry-related demand for platinum, as customers may be more inclined to pay a little extra for platinum jewelry.

Duncan said international platinum prices could rise to $1,550 per ounce in the next six months, due to the weak U.S. dollar, strong gold prices and a strong investment interest in platinum as the economy continues to recover.However, Harris said that according to Chinese culture, 2009 is thought of as an auspicious year for marriages and other ceremonious events, which contributed to increased platinum jewelery consumption. However, according to Chinese tradition, 2010 is not considered a lucky year, which may have a slightly negative impact on platinum jewelry consumption.

In terms of industrial demand, the majority comes from the automotive and chemical industries, and robust growth in both sectors in 2009 has boosted overall Chinese demand for platinum. Johnson Matthey has two plants in Shanghai that produce catalysts used in both industries.Platinum is used in catalytic converters mainly for the control of exhaust emissions. It is also used in the manufacture of intermediary chemicals used for production of plastics.

China's automobile output grew by 36.23 percent year-on-year in the first 10 months of 2009 and Duncan estimates that automobile output will grow at around 28 percent on an annual basis for the entire year.

"Our catalyst sales volume in China will mirror this growth in 2009, as China's automotive industry has been boosted by strong economic growth and government tax incentives. However, we predict that the growth rate of automobile output will slow in 2010 in comparison with 2009, thus we expect industrial platinum demand to only grow slightly," Duncan said.

"The Chinese economy's continued growth has led Johnson Matthey to expand our catalyst production capacity in the country this year. This is a reflection of Johnson Matthey's confidence in the long-term future of the Chinese market," Harris said.

Platinum demand from the Chinese automotive and chemical industries will grow at 16.22 percent and 25 percent year-on-year, respectively, to 215,000 ounces and 75,000 ounces in 2009, according to Johnson Matthey figures.