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Industrial firms, Wall Street hedge funds, and any big money investing in platinum anxiously await Johnson Matthey's semi-annual review of the platinum industry – and they got incredibly interesting reading in the group's most recent report, released Tuesday.
In its Platinum 2013 Interim Review, Johnson Matthey said the platinum market this year is moving toward a supply and demand deficit of 605,000 ounces – the largest deficit since 1999. That's up from a 340,000-ounce shortfall in 2012.
It said that gross demand for the precious metal could hit a record 8.42 million ounces in 2013, up 4.2% from last year.
This spike in demand is occurring as supplies from South Africa, the world's biggest producer, hit their lowest levels (about 4.1 million ounces) in 12 years due to continuing labor unrest in the country. South Africa produces about 75% of the world's platinum.
Three Reasons Driving Record-High Platinum Demand
The real story behind this price-pushing deficit is on the demand side. Johnson Matthey pointed to several key factors behind the rise in demand:
Reason #1 is growing industrial demand, mainly in catalytic converters for vehicles.
Sales of cars and light vehicles are expected to hit 87.2 million units in 2014, according to British research firm LMC Automotive.
Increased auto sales will be driven by new emissions standards in Europe and continued growth in China. The Chinese auto market is expected to hit the 31 million mark by 2018, according to Money Morning Global Resources Specialist Peter Krauth.
Reason #2 involves China and the growing demand there for platinum jewelry.
Bling is an important end use for platinum, accounting for 35% of overall demand.
Chinese jewelry demand today accounts for 25% of global platinum demand, ETF Securities wrote in a recent research note.
In the past five years alone, Chinese demand for platinum jewelry has doubled. That demand now makes up 80% of global demand for platinum jewelry.
Jewelry demand will keep rising as China's middle-class income grows. The country's private-sector wages rose 14% in 2012.
For Reason #3, we go back to South Africa…