Once a must-have ornament, platinum may be losing its appeal among China's jewellery-loving city dwellers after prices for the white precious metal struck lifetime highs on supply concerns.

The Chinese became the world's top buyers of platinum jewellery in 2002 when they stormed the platinum market, snapping up nearly 1.5 million ounces of the metal for diamond-decorated wedding rings and other designs.

But as prices surged this year to hit a record $2,290 an ounce in March, four times the $500 in 2002, sales are slowing.

China is still the world's largest market for platinum jewellery, accounting for around half of global demand, but it now consumes less than 800,000 ounces.

It will be hard for this year's jewellery demand growth to beat last year's; it may even drop, said Jin Xiangyun, analyst at Antaike, a state-owned metals research group in Beijing.

Platinum hit a series of record highs after a power crisis stopped mining in South Africa, the world's biggest producer. The disruption raised fears of a widening supply deficit and sparked speculative buying, adding to a rise of more than 30 percent in 2007.

The metal was quoted at around $2,150 an ounce on Tuesday.

I think we will see a slowdown in the jewellery sector but demand from other areas such as autocatalysts may offset this a bit, said Adrian Koh, an analyst at Phillip Futures in Singapore. I'd say there may be a decline of 5 to 7 percent.

In China, platinum jewellery is often seen as a status symbol. But the soft, ductile metal is also used in auto catalysts to cleanse environmentally damaging fumes from motor exhausts.

Of the 100 platinum jewellers in China in 2002, less than half remain. Many shops closed or shifted to producing other metals such as gold and palladium, said dealers.

I would say the margins for manufacturers are rather low, said Duke Lee, chief representative in China for Palladium Alliance International, a group promoting palladium jewellery.

Manufacturers are not in a position to produce inventory for platinum jewellery. Instead, they will only produce on orders, said Lee, who set up China's first joint venture platinum jewellery company in early 1990s.


Platinum also competes with palladium jewellery, especially in rural areas in China. Italian-made 18 carat gold, known as K-gold, has also gained popularity due to its contemporary designs and colours such as white, red, and yellow.

China's platinum jewellery rose to 780,000 ounces in 2007 after falling 13 percent to 760,000 ounces in 2006, the lowest since 1998, precious metals refiner Johnson Matthey Plc said in its latest report.

But it is unclear whether Chinese demand will still be resilient this year. Global consumption for new metal in the jewellery industry is estimated by Johnson Matthey (JM) to have fallen 55,000 ounces to 1.59 million ounces in 2007.

The rising platinum price created difficulties for retailers and manufacturers, and caused an increase in the recycling of old jewellery, JM said in its Platinum 2008 report, referring to the situation in China.

But dealers expect demand from palladium jewellery makers in China to rebound this year after falling more than 30 percent in 2007 to 500,000 ounces.

Palladium is also used in jewellery and auto catalysts, but at around $446 an ounce, it is much cheaper than its more glamorous sister metal platinum.

In the first quarter of 2008, we are reporting at least 25 to 28 percent increase compared with the first quarter of 2007, said Lee of Palladium Alliance, referring to production volume of manufacturers in China.

Platinum has dropped to around $2,150 an ounce from record highs as speculators booked profits, but the price is still 40 percent higher since the start of the year. Manufacturers rely on recycled platinum to churn out new products.

In the physical market, premiums for platinum bars narrowed to 80 U.S. cents an ounce against spot London prices from $2 early this year in Hong Kong, suggesting supply was ample and a there was a lack of interest from investors.

China's platinum demand grew 13 percent in 2007 to 49 tonnes from 41 tonnes in 2006. Obviously it can't keep up that rate of growth, said Jin of Antaike, referring to consumption in jewellery and other sectors.

But looking ahead, lower prices may draw new buying interest.

Having seen steady demand from end-users around $1,800, that level is likely to prove a major support, said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd. (Additional reporting by Chikafumi Hodo in Tokyo) (Editing by Peter Blackburn)

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