ANALYSIS-China passion for platinum revives as price softens

Published: 18 May 2009 17:07:10 PST

* China attracted to platinum after prices drop from record

* Slumping autocatalyst demand to keep lid on prices

* China Jan-March platinum imports up 17.3 pct year/year

* China consumer appetite intact, vs weak Japan demand

TOKYO/SINGAPORE, May 18 - Platinum may be winning the hearts of Chinese jewellery buyers again as prices tumble, possibly sparing the precious metal a deeper decline as the economic meltdown cripples automaker demand.

Unlike many commodities exposed primarily to economic conditions, platinum's use in jewellery -- a sector whose appetite depends on price, not industrial activity -- lends it growing fundamental support even at times when declining use in auto catalysts knocks prices lower, as it has this year.

"The strength in China's consumer demand lies in the fact that it had nil before ... and therefore the interest in wanting to buy new consumer items is incomparable to that of many other countries," says Akira Doi, managing director at Tokyo's Daiichi Commodities Co Ltd, who closely tracks the precious metals industry.

"This is especially true among young women, and this is not something that is easily swayed by the state of the economy."

China's platinum imports, mainly from top producer South Africa, jumped 17.3 percent in the first quarter to 10,195 kilograms, equivalent to nearly a third of its total use.

Growing consumer-level interest has also translated into increased trade on the Shanghai Gold Exchange <SGE/MENU>, where daily turnover has risen 50 percent to a still-small 280 lots a day in recent months, up from an average of under 200 last year. China's net platinum jewellery demand rose 9 percent to 850,000 ounces in 2008 after a price drop, Johnson Matthey <JMAT.L> said in a report on Monday, revising an earlier forecast for a decline of more than 20 percent.

This is in contrast to sinking demand in Japan, which together with China accounts for about 75 percent of total demand for platinum jewellery, much of it coming from the bridal market.

"The platinum market as a whole has become smaller due to higher platinum prices, while a deterioration in consumer sentiment has accelerated the process," said Chiharu Akiyoshi, a senior researcher at Tokyo's Yano Research Institute Ltd.

"The upscale jewellery market, which has been fairly resilient compared to the lower-priced market, also shrank last year," she said.

China reported a pick-up in annual retail sales growth to 14.8 percent in April [ID:nPEK234664]. In contrast, latest figures show Japan's retail sales fell 3.9 percent in March from a year earlier. [ID:nTKG004320]

Physical market indicators are also flagging improvement, with premiums for platinum bars steady at $3 to $4 an ounce in May, up from $1.5 in February as physical buying improved.

But platinum sponge, the key ingredient for making autocatalysts, was at a discount of $3.50 to $4.50, barely changed since early this year because of poor auto sales.

DOWNBEAT ON AUTOS

Platinum soared to a lifetime high of $2,290 an ounce last March, when investors bought the metal on supply worries. But fears of a global economic recession and weakening demand from carmakers later spurred selling.

Platinum <XPT=> plunged to a five-year low of $732.50 in late October. In December, the price of the white metal slid below that of gold for the first time since 1996, but it has since recovered to $1,107, about half its peak.

The brighter jewellery outlook clashes with demand for use in catalysts, which accounts for 60 percent of global consumption.

Toyota Motor Corp <7203.T>, the world's top automaker, said this month that it would sell about 1 million fewer vehicles this year, as its major markets in the United States and Japan slumped to multi-decade lows. [ID:nT285085]

But hope may grow on more signs of that beginning to change.

"Now that the global economy is beginning to show signs of stabilising, we are looking to perhaps China to spur growth in areas such as jewellery and auto demand," said Adrian Koh, an analyst at Singapore's Phillip Futures.

"I wouldn't say it will never revisit the record highs, but now we are still quite a distance from $2,000, and platinum will probably need something very bullish for it to reach those levels," he said.