High rhodium prices could hurt demand -Matthey

LONDON May 14 (Reuters) - Persistent high prices for precious metals rhodium and ruthenium could accelerate the hunt for alternatives and hurt demand, refiner Johnson Matthey (JMAT.L) said on Monday.

Rhodium RHOD-LON prices currently stand at around $6,400 an ounce just below April's $6,450 -- the highest since an all-time peak of $7,000 an ounce seen in 1980. Ruthenium RUTH-LON hit a record high of $880 an ounce in February.

"2006 saw some evidence of price sensitivity from end users of rhodium and ruthenium," the London-listed refiner said in a release. "If prices of these metals remain elevated, this trend of thrifting and substitution could continue."

Most rhodium is used by car makers in catalytic converters to limit carbon emissions, where regulations have become much stricter and contributed to rising demand for the metal.

Johnson Matthey estimates total global demand for rhodium last year was 837,000 ounces compared with 827,000 ounces in 2005, while supply was 824,000 and 754,000 respectively. Most of the production rise last year came from South Africa.

"The car market will remain key for rhodium," the refiner said. "With rhodium production from South Africa expected to increase in 2007 and Russian supplies likely to fall ... the rhodium market could move closer to balance in 2007.

That would indicate an easing of upward price pressures, Matthey said. It added that problems with Russian supplies of rhodium in the first quarter of this year have supported prices.

New applications of ruthenium in the aircraft industry because of its heat-resistant properties when alloyed with platinum has helped propel prices higher.

"In the ruthenium market, we expect to see further growth in demand from computer hard disk sector in 2007," Matthey said. "This will be offset to a degree by growing amounts of recycling of the backlog of spent ruthenium sputtering targets."

Matthey estimates that ruthenium demand grew by 45 percent to a record 1.29 million ounces in 2006 and iridium demand by two percent to 131,000 ounces.

Iridium is used in a range of electrochemical processes, for making high quality crystals for electronics and in automotive spark plugs.