Platinum has run to record highs this year, but it's not a rush of demand for wedding bands that has boosted prices. It's diesel. Demand for platinum comes from two main arenas: the consumer market for jewelry and the auto market, which uses the metal as a catalyst in diesel engines. According to JPMorgan, the price of platinum group metals has surged nearly twofold in a year and is up 85 percent since January. That performance has been topped only by zinc indexes and is trailed by other industrial and precious metals, including nickel, copper and gold.
Months of volatile price swings have scared off some buyers in the jewelry market, where demand is expected to drop 12 percent this year. However, demand for platinum as an auto catalyst is predicted to jump 15 percent in 2006, according to a report by platinum trading house Johnson Matthey, based in London.
Platinum demand from the auto market has been driven by demand for diesel vehicles, particularly in Europe but also in North America. For the first time, diesel model vehicles will make up more than half of all European auto sales this year, according to the Johnson Matthey report.
"Diesel-fueled vehicles continue to capture market share in Europe, with high fuel prices reinforcing the advantages gained from their good fuel economy," the report said.
Unlike the nickel and zinc markets — which saw severe supply shortages this year and sharply higher prices — platinum has maintained a relative balance between supply and demand. Still, the price of platinum surged to an all-time high of $1,335 an ounce in May (the high point of a broader commodities rally this year) and has neared that peak again in recent weeks.
Platinum settled up $18.50 at $1,189.30 an ounce Thursday on the New York Mercantile Exchange.
"Any time you have a market that is balanced, speculators would tend to view that as more bullish then bearish," said Tim Murray, general manager of precious metals marketing for Johnson Matthey in North America.
Recently, the price of platinum spiked again to around $1,240 as speculators bet on a rumor of a potential platinum-based exchange-traded fund. ETFs tracking the price movements of gold and silver have driven prices of those metals higher and added significant volatility, as new fund money poured into those commodities.
A platinum ETF hasn't materialized, and RBC Capital Markets Global Futures Vice President George Gero says he doubts one will.
"Platinum is not liquid enough for an ETF in the U.S.," he said. "Under 25,000 open interest, I don't think anyone would really consider it, and platinum has about 8,000 open interest." Open interest in gold on the Nymex currently stands at 155,000 contracts.
Platinum, produced largely in South Africa, is more rare than gold. Johnson Matthey estimates supplies of platinum will rise to their highest-ever level this year of 7 million ounces, or about 218.8 million tons — far below the world gold supply of some 4,391 tons in 2005, according to World Gold Council estimates.
