UPDATE 2-Platinum may set new record at $2,400 in 2008-GFMS


(Updates with quotes, detail after report release)

By Atul Prakash

LONDON, April 24 (Reuters) - Platinum could spike to a record high of $2,400 an ounce this year as the investment climate is positive and fundamentals remain strong, metals consultancy GFMS Ltd. said in a report on Thursday.

Palladium was likely to trade in a range of $400-$550 an ounce in 2008, as demand from autocatalyst and jewellery makers improved, GFMS said in its Platinum and Palladium Survey 2008.

Both platinum and palladium, mainly used in making jewellery and cleaning vehicle exhaust fumes, plunged into deficit last year, with total demand surpassing supply by 203,000 ounces and 361,000 ounces respectively, the report said.

The platinum market was expected to remain in deficit this year but would not necessarily deepen, as jewellery demand was expected to fall sharply.

Spot platinum surged to an historic high of $2,290 an ounce last month following electricity cuts in top producer South Africa that forced mines to shut for five days in January. The mines are still operating below full power.

Platinum has sharply fallen since then on profit-taking and was around $1,968 on Thursday. Palladium was at $435 an ounce, down from a 6-1/2-year high of $590 in early March.

"The investment climate for precious metals remains positive, with portfolio diversification and the pursuit of safe-haven assets being further stimulated by the fall-out from subprime and the prevailing weakness of the dollar."

"We would not expect platinum prices to fall below $1,700 over the remainder of this year. The risks are more biased to the upside, with every possibility of platinum moving to a new high of $2,400 before year end."

"Another added dimension is that we do remain quite positive regarding the gold price. Gold has seen some weakness but it is highly likely that, by the end of this year, gold would resume its upward movement and again challenge $1,000 an ounce," Peter Ryan, senior consultant at GFMS told Reuters.

"That could also be a factor that coincides with platinum prices moving significantly higher above $2,000 and towards $2,400 mark," Ryan said.

Platinum output from South Africa, which accounts for three-quarters of global production, suffered badly last year, with six years of continuous growth turning negative. World mine output fell 6 percent to 6.56 million ounces in 2007 from a year earlier and was seen falling by another 2 percent this year.


With uncertain power supplies in South Africa, there was a greater risk of an output drop this year, it said, adding production staying flat in 2008 would be an achievement.

High prices have hit the jewellery sector, with net demand halving over the last five years when prices doubled.

"With our price projection for platinum to move to a new high of $2,400 before this year end, a further fall in jewellery demand is almost inevitable and it will probably be more dramatic than in 2007," Ryan said in a statement.

World jewellery demand fell 13 percent to 1.48 million ounces in 2007, but new metal demand in top jewellery market China actually rose despite strong prices. Jewellery demand in Japan and the United States declined, the survey noted.

On the other hand, platinum demand from the autocatalyst sector rose more than 4 percent to 4.26 million ounces in 2007 due to stringent emission norms worldwide.

The stage was set for palladium to make further gains in demand, with its use in autocatalysts seen growing and jewellery demand expected to improve in China and the United States.

Total palladium supply fell 1.3 percent to 7.96 million ounces in 2007 from the previous year, while global demand rose 4.8 percent to 8.32 million ounces.

(Editing by Chris Johnson)



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