It is reported from UK-refiner Johnson Matthey that Chinese jewellery demand has been tremendously strong in 2009. But how long can it keep on growing?
It’s been clear that China’s demand for platinum has been exceptional in the last 12 months. There are two key and relatively timely sources of data about the Chinese market – the country’s imports of platinum, both direct and via Hong Kong, and turnover on the Shanghai Gold Exchange (SGE). Both have been very strong since Q4 2008, and that has continued through most of 2009. The chart below shows net imports of unwrought platinum into China & Hong Kong since the start of 2008.
After a rather subdued first nine months of 2008, on the back of the extremely high platinum price and restricted supply (due to the power crisis in South Africa), Chinaâ€™s demand really took off in September 2009 as the price crashed, and has remained strong ever since. It dipped in June this year but has slowly recovered. October data is only available for direct China imports, and this shows these falling back to 79,048 oz, the lowest since December 2008.
In total, these add up to 1.7 Moz in 2008 (of which nearly 900,000 oz came in the last three months) and 2.3 Moz in 2009, up to the end of September. Even if imports were to slow to a rate of 150,000 oz a month for the last three months of 2009, that would still imply 2.75 Moz for the full year. Itâ€™s possible that some of this data is less than totally reliable â€“ Swiss exports to China do not always tally with recorded Chinese imports from Switzerland, for example â€“ but the trends are clear.
A similar tale is shown by the cumulative turnover on the Shanghai Gold Exchange’s platinum contract. By end-November this year the cumulative total traded in ounces (having halved the total to remove double-counting) was 838,299 oz, far in advance of the previous highest level at this stage of 2008, when it was 632, 952 oz.
These volumes are lower than those recorded by imports, as not all platinum that enters China, and even more so Hong Kong, goes through the Shanghai Gold Exchange. Nevertheless, as the following charts show, the trends have been similar.
Both measures suggest that, even allowing for some slowdown in December as higher prices have begun to bite, China’s platinum usage will be much higher in 2009 than in 2008. The data however cannot tell us how much goes into jewellery as opposed to autocatalysts, glass, electronics and chemicals. In November the UK-based refiner Johnson Matthey (JM) suggested that total demand (from all sources) of platinum in China in 2009 would be 2 Moz, 66% higher than 2008. Of this they estimate 1.75 Moz1 will be jewellery, up from 850,000 in 2008. It is interesting to note that JM’s jewellery figures match Hong Kong imports quite closely.
Clearly it is not an exact science as to how much platinum goes to one use or another. However, jewellery manufacturing is going to be the major platinum user in China. Primarily this is because the Chinese automotive industry tends to make gasoline-powered cars, and so the split between platinum (normally found in diesel-engine autocatalysts) and palladium is heavily in favour of the cheaper metal. The next largest use typically is glass manufacturing, followed by the chemical and electronics industries.
These contribute a fair chunk to China’s consumption, but even if they have been underestimated it is still the case that jewellery demand must have increased substantially over 2008. It is possible that the high levels of jewellery demand might to some extent be masking investment in platinum, but it is impossible to know in what quantities this might be happening.