Asia Platinum-Slow auto demand hits premiums, China sidelined

By Lewa Pardomuan

SINGAPORE, Feb 10 (Reuters) - Slow demand from auto makers hit premiums for platinum in Asia as dealers struggled to sell inventories, while demand from jewellers in China fizzled out after the Lunar New Year, industry sources said on Tuesday.

Platinum has bounced more than 30 percent since plunging to a five-year low around $732 an ounce in October, thanks to a recovery in gold prices and investment demand, but automakers stayed away as the global economic downturn battered sales.

"It's strange to see the price moving up when there's no physical buying from the industrial sector. Nothing," said a Tokyo-based physical dealer. "Maybe investment demand is pushing up the price but still, I am not too sure about it."

Premiums for platinum bars slipped to $1.5 an ounce to spot London prices in Hong Kong, from $2 in December, but some dealers also offered the metal at zero premium due to weak demand. <GOLD/ASIA1>

"Platinum price has dropped a lot, so that's why demand was very strong, especially before the Chinese New Year. It's a bit quiet these days but I don't see people selling back at the current price levels," said a dealer in Hong Kong.

More than 60 percent of global platinum use goes to autocatalysts to clean exhaust fumes. Jewellery accounts for about 20 percent of demand, with China being the largest consumer, but investment demand only accounts for 2.5 percent.

Global auto makers have scaled back production, cut jobs and shut factories due to slumping demand, which forced them to reduce platinum purchases. A car needs up to 3 grams (0.1 oz) of platinum in the form of autocatalysts, said dealers.

Platinum XPT= was trading at $991.00 an ounce, up $3.00 from New York's notional close, with gold prices also dictating movements. Gold XAU= was trading at $898.60 an ounce, up $3.60.

Platinum was still well below a lifetime high of $2,290 struck in March last year, when investors and speculators bought the metal on supply worries following a power crisis in main producer South Africa.

"If the economy continues on a downward spiral and the auto industry turmoil continues to worsen, then demand could worsen and that may actually place a bit of pressure on platinum prices," said Adrian Koh, analyst at Phillip Futures in Singapore.

"Overall, I think platinum will likely take on a consolidation pattern and the near term resistance to watch will be the $1,000-region," said Koh, referring to levels seen in October.

But physical dealers said weak fundamentals could easily drag down the price again, with producers now facing a glut in raw material such as platinum sponge, the key ingredient for making autocatalysts, as auto makers cut purchases.

Nissan Motor Co (7201.T) expected an operating loss of 180 billion yen ($1.97 billion) in the year to March 31 and a net loss of 265 billion yen to pay for a series of steps to weather the worst downturn in the global car market in decades. [ID:nT132934] "Platinum sponge is now on sale at a discount of between $4 and $5 an ounce. It was quoted at a premium of $2 last August before falling steadily. There are no buyers," said the Tokyo dealer.

British platinum specialist Johnson Matthey (JM) (JMAT.L) said on Monday it expected world platinum output to rise less than 5 percent rise this year, while demand would fall by roughly the same margin.[ID:nL9408821] (Editing by Clarence Fernandez)