In recent months we have seen some spectacular spikes in platinum prices, and an increasing amount of interest and press coverage surrounding platinum group metals. Although there was a certain amount of volatility in the market over the 1996 to 1999 period, overall average prices were fairly static, with annual averages between $375 and $400 per oz., a modest $25 differential.

Since October 1999 prices moved sharply upward, and in the last 2-3 months have escalated to levels not seen since the late 1980's. January and February 2000 levels are over $150 and often over $200 per oz higher than the same period last year - quite an AMAZING and DRAMATIC change.

WHAT FACTORS HAVE CAUSED THIS PHENOMENON?

SUPPLY
South Africa is the largest producer of platinum and has maintained a consistent supply pattern. However, the producers are selling everything they can, are at full mining capacity, and an increase in production means sinking new shafts, large capital expenditure and a fairly long lead time. Amplats especially, the world's largest platinum mine is committed to long term availability and is currently in an expansion mode that will result in significant extra platinum over the next few years.

Stillwater in the USA is currently expanding, and although the major metal is palladium, there will be modest extra amounts of platinum.

There are also relatively minor amounts available from the Canadian Nickel mines, and some from Zimbabwe and Columbia.

Russia is the second largest area of supply, but differs from South Africa. Platinum in South Africa is the main metal that they mine for. In Russia, platinum is a byproduct of nickel. Due to better nickel prices especially, the financial situation at the Russian mines has improved and there will be some major changes at Norilsk Nickels' operations. Large capital investment is being made in ore concentration, mining and the general infrastructure.  This however is mainly a thrust to reduce costs rather than increase production. It will help maintain the existing production, which was being threatened by inefficiencies.  Political problems in Russia have resulted in interrupted supplies consistently over the last 3 years.

Of course, 1999 and 2000 to date have proven to be very disruptive and the uncertainty of supplies has contributed immensely to the price volatility.

DEMAND
Demand for platinum continues to grow in many sectors but especially in jewelry use, where we saw a 13% increase, or more, compared with 1998. It is very relevant to look at some of the other non-jewelry demand sectors, as certainly these are extremely varied, and can affect the overall picture greatly.  Autocatalyst has been a very important area. Until the last 4 or 5 years, the net demand for platinum for catalytic converters was very similar in total to jewelry demand totals. In the early '90s it was virtually one third for autos, one third for jewelry and one third for the rest.

In more recent years, although emission control has continued to get tighter, it has been palladium that has been used to a greater extent, and especially in North America, platinum consumption has slightly reduced, despite record car sales.
One factor that impacts the car maker is that availability of newly produced palladium is currently much lower than the overall palladium demand. You may have heard or noticed that palladium prices over the last few months have leapt up enormously and have hit all-time records. Once again the absence of sufficient metal from Russia has contributed to this situation. However it is the Russian stockpile that the palladium users have relied on.

The auto industry is working hard to reduce its reliance on palladium, mainly through thrifting and some engineering work. It is also considering some switching of catalyst mix to more of a mine mix by using extra platinum.

Growth of platinum in other areas includes its use in hard disks. This is for data storage of information for personal computers. Due to the need to run powerful modern software and the high quality graphics and sound that P.C.s use, platinum is used to enhance the existing alloys. There have been quite a lot of press reports about fuel cells recently, especially by the auto industry who are marketing clean air concepts. Platinum is used in many different types of fuel cells using its catalytic properties. Here then is another use in years to come, not only for some cars, but also as a source of power.

Let's look more closely at jewelry, which is obviously our major focus.

In the last ten years, platinum used for jewelry has doubled on a worldwide basis from 1.3 million ozs to over 2.7 million ozs, an increase of 1.4 million ozs. Other industrial sectors took more but the rate of growth was much more modest, adding not quite half a million ozs.

Japanese platinum jewelry continues to dominate the picture as far as overall demand is concerned. Most of the demand of course is for bridal but there are signs that a wider range of platinum products are getting some attention. Certainly some programs are being implemented to promote chain and this would seem to be a natural step for the next market segment. In Japan sales of necklaces and bracelets rose by over 20% last year.

We expect U.S. baby boomers to continue to spend heavily on consumer goods and so called luxury items such as platinum.  Sales of platinum should increase at a faster pace than the jewelry market as a whole. Generally platinum products attract greater margins, which also brings a new incentive for all concerned.

Let's continue to use, promote and enjoy the fruits of the platinum push and we can be confident of continuing growth in platinum usage in jewelry and success for all.
 

V8N2

The Growth of Platinum Jewelry and
its Importance in Overall
Supply / Demand
Gordon Bassett • Johnson Matthey

This is an abbreviated version of the original work. For full technical details, please consult the original paper.