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After a volatile 2008, during which the metal fell to a low of $771 per ounce in October from a high of $2,250 in May, platinum now looks poised to enjoy a six-month period of strong but stable prices, the metals and chemicals company Johnson Matthey said last week in its annual platinum market report.
Johnson Matthey said platinum could reach as high as $1,350 an ounce in the next half year while staying above $950 an ounce on the low end. Platinum traded at $1,153 an ounce Friday.
Platinum suffered some of its biggest setbacks last year during the decline of the U.S. and European auto industries, two of the metal's biggest consumers. Auto industry demand declined for the first time in over a decade in 2008, falling 8.2 percent to 3.81 million ounces.
While increased demand from bullish investors and jewelers may help offset some of the shortfall, it is more likely that a full recovery will only arrive when carmakers see a turnaround.
"I think the major driver right now for the price is the strength in investment demand, which refers partially to the slack in industrial demand," said Mikhail Stiskin, a metals analyst at . "That's what's keeping platinum at these prices."
In 2008, 47 percent of platinum demand came from the auto sector, down from 49 percent in 2007, said David Jollie, one of the Johnson and Matthey report authors.
Forecasting demand from the sector this year remains difficult, Jollie said, given the uncertainty in the industry and producers' increasing preference for cheaper palladium for autocatalysts.
"Historically, you have platinum-only catalysts, and now you have platinum-palladium catalysts as well. People are introducing those at a faster rate because it's economically attractive to do so," he said.
Platinum demand fell 5 percent to 6.35 million ounces last year, compared with that for palladium, which grew 15,000 ounces, or 0.2 percent, to 6.85 million ounces.
Johnson and Matthey forecasts that palladium will trade between $180 and $280 during the next six months but said it expected to see a decrease in demand because of auto industry travails.
Palladium output could fall this year, the company said, if sales from Russian state reserves continue to decline like they did last year.
Norilsk Nickel, the world's top palladium producer, reported last month that production of the metal fell 1.2 percent year on year in the first quarter to 590,000 ounces, while platinum production rose 2.2 percent to 141,000 ounces.
Despite a rough 2008, Norilsk continues to have some advantages over competitors, Stiskin said. "Norilsk Nickel has a very low cost base, so it's been operating very well under the current market conditions so far," he said.
Norilsk gained 8.4 percent on the week to close at 3402.12 rubles on Friday. That beat the market, with MICEX increasing 5.2 percent to close at 1054.02, and the dollar-denominated RTS put on 8.2 percent to finish off the week at 1013.37.
For now, the rally that and platinum producers are seeing may continue to depend on Chinese jewelry demand, which looks to hold out for at least the near future, Jollie said.
"You can expect flows of metal into China for jewelry to soften a little bit later in the year ... but still I think it will be a very successful year in terms of demand, because there is a lot of consumer interest in the jewelry," he said.
