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May 17, 2010
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Platinum may hit $2,000/oz in next six months

By
Reuters
Published
May 17, 2010

By Jan Harvey

LONDON, May 17 (Reuters) - Rising investment may take platinum to $2,000 an ounce in the next six months, its highest since mid-2008, Johnson Matthey said in an annual report, even though a recovery in industrial demand is set to be slow.



The investment flow, coupled with a recovery in automotive and industrial demand, could drive palladium to levels not seen since 2001, it added.

"Physical investment demand had a significant effect on the platinum market during 2009 and is expected to do so once again in 2010," JM said.

If interest rates remain low and the gold price stays at current levels, net investment inflows into platinum were likely to continue and lead to the $2,000 mark.

"If investors continue to build on their large futures and ETF positions, as they have in recent months, recovering industrial and automotive demand could help drive palladium as high as $700 during the next six months," JM said.

Burgeoning investment in the metals helped both to rise in price last year, despite the platinum market swinging into a surplus of 285,000 ounces from a deficit of 220,000 ounces in 2008, and palladium widening its surplus to 760,000 ounces.

On Monday 17 May platinum XPT= fell to $1,690 versus $1,715.50 while palladium XPD= dropped to $511 versus $523.50.

Platinum has risen 15 percent so far this year, while palladium is up 26 percent.

This year JM expected the platinum market to return closer to balance as demand from the automotive and other industries picks up. However, this was not expected to be dramatic.

"Concerns remain over the global recovery," it said. "Recovery is painfully slow in many countries and worries over the sustainability of Chinese economic growth have surfaced. National credit issues also continue to weigh on the euro."

"If these concerns dominate the market, platinum could trade as low as $1,600 during the next six months."

JM sees jewellery demand recovering in Europe and the United States, though very strong Chinese jewellery buying was likely to abate after a particularly strong 2009.

On the supply side of the market, JM said the short-term outlook for production in South Africa -- source of four out of five ounces of the world's platinum -- was "quietly positive".

However, in the medium term issues with power availability, rising costs and labour constraints cloud the picture, it said.

The company said it expected platinum recycling from autocatalysts and the jewellery industry to rise this year, after it dropped 23 percent last year to 1.405 million ounces.

PALLADIUM SEEN CUTTING SURPLUS

Supply of platinum's sister metal palladium was forecast to rise, both from stockpile sales and mine output. Production in both South Africa and Russia, which account for 85 percent of global mine output between them, was seen higher.

Recycling was also expected to rise from spent autocatalysts and electronics, after it fell 11.5 percent last year.

This was expected to help the palladium market reduce its surplus next year. If no sales are made from Russian state stockpiles, the market would be in deficit, but JM told Reuters it expected similar levels of such sales this year as in 2009.

The palladium market was expected to benefit from a rise in car sales, particularly in the Chinese and U.S. markets. Car buyers in these countries prefer gasoline engines, which use a higher loading of palladium than platinum.

"Global automotive output should recover some of the ground lost last year," the company said.

"A gradual recovery in the world's economic situation has reassured consumers and made them more willing to buy new vehicles after delaying purchases over the previous 18 months."

JM added that investment demand for palladium seems "certain" to increase this year.

"Price movements over recent months indicate that many investors see potential long-term profits in this metal, perhaps driven by speculation that Russian state stocks are now effectively almost exhausted," it said.

Nonetheless, it added, any sign that the recovery in industrial demand for the metal was going to be slower than expected could pressure palladium prices. A weaker investment appetite for precious metals could also weigh.

"If Chinese growth were to slow or industrial and automotive output were to falter, the palladium price could soften," it said. "Any spell of dollar strength or weakness in the gold price could see investment outflows... which could drive the price to trade as low as $475 (in the) next six months."

(Editing by William Hardy)

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