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Platinum seen firm in 2003, palladium weak-Matthey

By Clare Black

LONDON, May 19 (Reuters) - Platinum demand and prices will remain strong in 2003, in contrast to ever weaker prices for its sister metal palladium, precious metals refiner Johnson Matthey (JM) said on Monday.

"With physical availability of metal remaining tight, JM forecasts that platinum will trade between $590 and $690 an ounce for the rest of 2003," JM said in its Platinum 2003 review.

Spot platinum , widely used in jewellery and autocatalysts, was trading at around $656 an ounce in European markets, off a 23-year high of $705 hit in March.

JM estimated that demand for platinum grew by five percent to 6.54 million ounces in 2002, driven by another strong year of sales to the China jewellery market and by greater use in autocatalysts.

Although higher prices did not dampen Chinese enthusiasm for platinum jewellery in 2002, the deadly SARS virus will halt what had been impressive demand growth.

"There is certainly likely to be a slowing of overall demand from the Chinese jewellery sector this year and it could well flatten out," JM Publications Executive, Tom Kendall, told Reuters in an interview.

"At the moment we're working on the basis that demand is pretty much flat."

Kendall said that if the outbreak was to continue at the same level or even get worse then there could be a fall in demand in 2003.

"Of course the scale of that would very much depend on how the outbreak is tackled, the worst case scenario could see a 20 to 30 percent fall -- but at the moment I think that's probably a very pessimistic view," he said.

The Chinese jewellery market accounted for more than one-fifth of total global platinum demand in 2002.

Poor profit margins may also cut into Chinese demand this year, JM said, as jewellery manufacturers are very reluctant to pass on increased prices to consumers in a highly competitive environment.

"Fabricators were largely unable to pass on higher metal costs to retailers, and by the fourth quarter their profit margins had been heavily eroded," the report said.

Platinum supply rose less than two percent to 5.97 million ounces in 2002 and was forecast to rise in 2003, although not sufficiently to keep up with robust demand.

"The overall increase in supply, however, is unlikely to close the gap with demand and physical availability of metal will remain tight," it said.

MORE GLOOM FOR PALLADIUM

Palladium demand was forecast to continue lagging supply in 2003 and that the market would remain in surplus.

"JM expects price weakness to persist with palladium trading between $120 and $180 during the next six months," it said.

Spot palladium was trading at $157 an ounce on Monday, up from a six-year low of $140 set in April.

Palladium supply from South Africa would "increase substantially" while sales from number one palladium supplier Russia would exceed last year's low, JM said.

JM estimated that palladium demand slumped 29 percent last year to 4.78 million ounces, its lowest level for nine years as auto industry purchases dropped dramatically due to substantial use of stocks by some automakers.

Supplies of palladium slid by 28 percent to 5.25 million ounces as Russian sales were cut.

(Additional reporting by Veronica Brown in London)