Jewellery makers in Asia shrugged off platinum's falls from record highs as they struggled to use up inventories, and dealers said on Wednesday more auto makers were turning to sister metal palladium as a substitute.
"Over $900, you should get less interest, certainly less demand," said Alastair McIntyre, head of marketing at ScotiaMocata in Hong Kong. "After $900, you start to see, you have either perceived or actual substitution in palladium," he said.
Platinum spiked to $1,083 an ounce on February 3 mainly due to gains in gold as investors diversified into precious metals on worries about inflation, the dollar's outlook and tensions in the Middle East over Iran's nuclear ambitions.
The metal, which rallied as much as 18 percent in 2005, has since dropped as funds booked profits, but dealers said the declines failed to stir up interest from main consumers such as China and Japan.
Customs data from China showed declines in platinum imports in January, when the metal used in jewellery and to clean car exhaust fumes began its steady climb. China is the world's largest consumer of platinum jewellery.
China's imports from Switzerland, South Africa and Japan fell to 952 tonnes in January, down 41.3 percent from the same month in 2005.
Spot platinum was quoted around $1,044 an ounce while its much-cheaper sister metal, palladium, was around $286.
"Consumers don't react much to prices but if you talk to the manufacturers, they are very sceptical about continuing their production," said a dealer in Shanghai.
"The margins are very low. Because of the price fluctuations in the international market, manufacturers are not really keen to stock up. They only make jewellery when they receive orders," he said.
Precious metals refiner Johnson Matthey said China's purchases of platinum for jewellery manufacture was expected to fall about 10 percent to 910,000 ounces in 2005 as high prices scared off buyers.
Talk that more auto makers would shift to palladium had triggered fund buying, propelling the metal to its highest in nearly two years at $320 in February, but dealers said the increase may not deter demand.
"The thing is that when people are waiting for a price level to enter, they tend to make mistakes," said a precious metals dealer in Hong Kong.
"If you look at the gold price, it has gone up from $250 to almost to almost $600. Every time they waited for the price to fall, they'd been burned because the price continues to go higher," he said.
Some Hong Kong dealers said they saw demand for palladium from jewellery makers in China since the price fell from highs.
Because of poor margins, China's platinum jewellers have turned to palladium and white gold - an alloy of gold and other light-coloured metals such as silver and palladium.
"Selling pressure increased when palladium reached $320. I am still bullish on palladium but it must consolidate," said another Hong Kong dealer.
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