Platinum, used mainly for autocatalysts in diesel cars and trucks and jewelry, soared to a 26-year high on fund buying and strong fundamentals, while palladium rose to a 1-1/2 year high.
       "Platinum is being bought very steadily. There has been some short covering by the funds," said a metals analyst.
       Johnson Matthey in the just-released Platinum 2005 Interim Review forecasts improved demand for platinum and palladium and a firm price outlook for both metals.
       Johnson Matthey predicts the price of platinum could reach $1,030 during the next six months and a price range of $190 to $270 for palladium for the next six months.

       The Summary and Outlook for platinum published in the Platinum 2005 Interim Review by Johnson Matthey follows:

       Demand for platinum is forecast to expand by 2 per cent in 2005 to reach a new high of 6.71 million oz. Purchases of platinum for use in autocatalysts will increase robustly, the sixth year of growth in succession. In contrast, however, higher platinum prices will result in purchases by the jewelry sector falling for the third consecutive year. Supplies of platinum are projected to total 6.59 million oz, also 2 per cent up on 2004, with slower growth in South African output than previously anticipated. With the platinum market again expected to be in moderate deficit, the price will remain strong.

        Autocatalyst demand for platinum is forecast to increase by 300,000 oz in 2005 to reach a total of 3.86 million oz European auto makers will purchase substantially more platinum as sales of diesel-powered light vehicles continue to grow, and as average diesel catalyst loadings increase to meet Euro IV emissions limits, Increased demand from diesel truck manufactures in Japan; the retrofitting of catalysts to heavy duty diesel vehicles in the USA; and higher light vehicle production in Asia will also contribute to growth in platinum demand.
        In contrast, purchases of platinum for jewelry manufacture are forecast to decline to 2.02 million oz, a fall of 140,000 oz. Demand in China will drop for the third year in a row, and is also expected to weaken in Japan and North America. The strength of the platinum price has led to a reduction in trade stocks of platinum jewelry and an increase in the volume of old pieces being recycled.
        Demand for platinum in industrial applications is expected to grow by 80,000 oz to 1.615 million oz. Consumption of the metal in electrical applications will increase substantially this year thanks to rising production of hard disks. Demand from the glass industry is also forecast to be strong as manufacturers of glass for flat panel displays continue to invest in new capacity in Asia. At just 15,000 oz, however, sales of physical investment products will remain small.
        Supplies of platinum are forecast to rise by 130,000 oz to 6.59 million oz this year. South African production will continue to expand but once again the rate of growth will fall short of previous expectations. Sales of metal from Russia are likely to edge upwards but should continue to closely reflect mine production, whilst output in Zimbabwe is expected to be a little higher than in 2004. North American supplies of platinum, however, will not match last year's total.
        As in 2004 the platinum market is on course to record a moderate deficit this year; a fact that has been reflected in the strength of the price. However, the momentum that took platinum up out of its $860 to $880 trading range from mid-June onwards was much more a result of fund buying than physical demand.
        The net non-commercial position in NYMEX futures, which broadly reflects the overall pattern of fund investment in platinum, climbed from a low of 130,000 oz in January to almost 550,000 oz during the first half of October. Funds have also been active on TOCOM throughout the year to date, with the net speculative long position estimated to have risen to the equivalent of 650-700,000 oz over the same period. As a result, the price moved up in a series of strong rallies, hitting $941 on the London fixings in early October, the highest since March 1980.
        Whilst the fundamentals are important in driving investment decisions, the increased fund exposure to platinum has also stemmed from the attraction of commodities as a means towards portfolio diversification, higher absolute returns and as a hedge against inflation and dollar depreciation.

Supply

        South African supplies of platinum are forecast to increase by 150,000 oz in 2005 to total 5.12 million oz. Output would have been higher but for the closure of Anglo Platinum's smelter in Polokwane for repairs following an explosion in September. The incident will result in the group's refined platinum output falling short of its target for the year of 2.6 million oz, perhaps by as much as150,000 oz.
        Platinum output from Impala's operations on the western limb of the Bushveld Complex increased by 4 per cent during the first half of 2005 thanks to increased productivity and higher mill throughput. The operation is on course to exceed 1.1 million oz of platinum production for the second year in a row. The rate of development at the company's Marula mine on the eastern Bushveld, however, has been constrained by the need to switch from mechanized to conventional mining methods.
        Lonmin's production of platinum fell by 11 per cent during the first half of the year to 457,000 oz, largely due to the depletion of shallow UG2 reserves. However, the company's output during the second half should get a boost from the refining of pipeline stocks of metal that accumulated following a smelter shutdown in late 2004.
        Platinum output at Northam reached 109,000 oz during the first six months of 2005, up by 12 per cent year-on-year. Greater production should also be seen from Aquarius Platinum's Kroondal and Marikana mines, which both now operate under pool and share agreements with Anglo Platinum.
        Shipments of platinum from Russia this year are forecast to total 860,000 oz, marginally higher than in 2004. Norilsk Nickel published data on its output of platinum and palladium for the first time in September, revealing that it had produced 355,000 oz of platinum in the first six months of 2005 and estimating output for the full year of 730,000 oz. Production from the alluvial operations in the far east of Russia is likely to slip lower, whilst sales of metal from state stocks are again expected to be minimal.
        North American supplies of platinum will fall to an estimated 340,000 oz in 2005: sales by Inco will decline due to the temporary closure of its smelter for scheduled maintenance, and production from North American Palladium will drop in line with reduced palladium output. Shipments of platinum from Zimbabwe, however, are expected to rise by 5 per cent to 155,000 oz as a result of higher production at both the Ngezi and Mimosa mines.

Demand

        Autocatalyst demand for platinum is forecast to climb by 8 per cent or 300,000 oz this year to set a new record of 3.86 million oz. The trend of strong annual growth in demand in Europe will continue, with automakers in the region expected to purchase 1.94 million oz of platinum, up by more than 15 per cent compared with 2004. Sales of diesel cars are still growing, with the market share taken by diesels in Western Europe likely to near 50 per cent over the year as a whole. At the same time, the introduction of models that meet Euro IV emissions legislation will result in an increase in the average platinum loading per diesel vehicle.
        Japanese auto industry purchases of platinum are forecast to slip by 25,000 oz to 580,000 oz in 2005 as vehicle manufacturers add less metal to inventories than the year before. However, the use of metal in catalysts is expected to increase as new emissions standards generate greater demand from the heavy duty diesel sector.
        Auto industry demand for platinum in North America is forecast to edge up by 20,000 oz to 820,000 oz in 2005. The retrofitting of heavy duty diesel vehicles with exhaust after-treatment systems will generate a modest volume of additional platinum demand.
        Purchases of platinum by auto manufacturers in China are forecast to climb by 30,000 oz this year to 110,000oz, in line with further strong growth in car production and tighter vehicle emissions limits. The same factors will push autocatalyst demand for platinum in the rest of the world up by 4 per cent to 410,000 oz.
        Purchases of platinum for jewelry manufacture are forecast to decline by just over 6 per cent in 2005 to 2.02 million oz. Demand in China is almost certain to fall for the third year in succession, and purchases by jewelry manufacturers in Japan and North America are also likely to weaken. In all regions the increased price of platinum has had a detrimental effect on demand for the metal.
        Chinese purchases of platinum for the manufacture of jewelry are projected to drop by 100,000 oz to 910,000 oz this year, more than 500,000 oz below the peak level of demand seen in 2002.
        The rising cost of financing inventories of platinum jewelry and the volatility of the platinum price have led to an ongoing reduction in stock levels throughout the Chinese jewelry trade, with most manufacturers now only producing platinum pieces to order. Output of diamond set jewelry has dropped particularly sharply this year, a reflection of previously over-optimistic levels of production.
        Palladium jewelry has won a greater share of retail counter space this year, contributing to the reduction in platinum jewelry inventories. Meanwhile, higher platinum prices have led to an upturn in the number of consumers trading in old items of platinum jewelry in exchange for new, rather than buying new pieces outright.
        Nevertheless, the situation at the retail level remains very mixed, In Shanghai the majority of leading jewelry and department stores have not introduced palladium, and while there is some palladium on display in Beijing it has received little interest from consumers. In both cities, sales of platinum jewelry have held up well despite higher retail prices.
        In North America, the increased price of platinum has also resulted in inventories being reduced throughout the trade. With retail sales also facing strong competition from white gold, purchases of platinum are forecast to drop by 10 per cent to 260,000 oz.
Purchases of platinum for jewelry manufacture in Japan are projected to weaken by 10,000 oz to 550,000 oz in 2005, a smaller rate of decline than in the previous two years. The volume of metal being recycled from trade inventories appears to have stabilized but the strong platinum price has encouraged more consumers to trade-in and pawn old pieces of jewelry.
        Platinum purchases for use in industrial applications are forecast to climb by 5 per cent to 1.615 million oz in 2005. Demand for platinum in electrical applications is on course to reach 355,000 oz this year, an annual increase of 55,000 oz. The growth will be driven by the hard disk sector, with manufacturing rates pulled sharply upwards by substantially higher sales of computers and consumer electronics.
        Glass industry purchases of platinum are forecast to increase by almost 9 per cent to 315,000 oz. Substantial investment continues to be made in the construction of new plants in Asia for the manufacture of high quality glass for flat panel displays.
        In the chemicals sector, purchases of platinum are expected to soften to 320,000 oz, with less paraxylene capacity scheduled to come on stream this year than in 2004. Demand for platinum used in petroleum refining catalysts, on the other hand, is projected to increase by 7 per cent to 160,000 oz, benefiting from high operating rates within the industry.

Outlook

        Platinum demand is expected to extend its decade-long upward trend in 2006, with growth likely to accelerate compared with 2005. The autocatalyst market will continue to generate much of the forecast additional demand, with purchases of platinum expected to climb in Europe, North America and Asia.
        Sales of light duty diesel vehicles in Europe are set to continue to rise, with higher fuel prices reinforcing the advantage of better fuel efficiency that they have over gasoline vehicles. At the same time the fitment of catalysed diesel particulate filters (DPF) will increase, pushing the average platinum loading per vehicle upwards. The majority of auto makers now offer DPF as optional extras and one European manufacturer has already begun fitting them as standard equipment.
        In North America, new demand from the heavy duty diesel sector is expected to provide a boost to platinum purchases next year. Truck manufacturers serving the US market will begin producing models that comply with strict new emissions legislation, which necessitates the use of diesel oxidation catalysts and on some vehicles, particulate filters. The impact of this on platinum demand will outweigh by a considerable margin the effects of the ongoing switch to palladium-based catalysts for gasoline light vehicles.
        Further growth in platinum demand will stem from higher production of light vehicles in China, India and South East Asia and the tightening of emissions limits in several major vehicle markets,
        In contrast, in the current price environment jewelry demand for platinum will remain vulnerable. A further contraction in stocks held by retailers and an increase in recycling is probable in China. There is also the possibility that growth in retail sales of palladium jewelry may occur partly at the expense of platinum.
        The outlook for purchases of platinum for jewelry in other markets is also uncertain - it is possible that demand in Europe, Japan and North America will stabilize at current levels but platinum will continue to face strong competition from other white metals.
        The prognosis for the use of platinum in industrial applications is positive. Further growth in production of hard disks and additional investment in new LCD glass manufacturing plants in Asia should see demand from the electrical and glass sectors rise again; and consumption of the metal in catalysts for the chemicals industry is also forecast to increase, primarily due to investment in new manufacturing capacity in China.
        As with demand, supplies of platinum are set to grow more rapidly next year than this, barring any further disruptions to production in South Africa. The ongoing expansion of mining operations should deliver a greater increase in refined platinum output next year. This, plus the release of any metal that builds up in Anglo Platinum's process pipeline as a result of the temporary closure of its Polokwane smelter, is expected to result in a more meaningful increase in supplies from South Africa.
        North American output should also improve in 2006 and production in Zimbabwe is likely to continue growing slowly. Russian sales of platinum are forecast to be maintained at or close to the rate of mine production.
        Supplies of platinum and demand for the metal are projected to grow at similar rates in 2006, and the market is therefore set to remain in deficit. With fund interest in precious metals still high and the fundamentals supportive, the price of platinum could trade up to as much as $1,030 during the next six months. Conversely, we do not expect platinum to fall below $890 unless demand from jewelry manufacturers contracts more substantially than current trends suggest.