by Tony Daltorio, Investment U Research
Monday, January 18, 2010

The latest annual survey data released from the London Bullion Market Association forecasts that platinum prices will range between $900 and $2,578 an ounce this year, with an average of $1550. If true, it lies very close to the current trading price of $1580, and would ensure a gain of 28.7% on the $1205 median for 2009.

That may seem optimistic, considering how much demand comes from the severely depressed global automotive sector. But that’s why platinum prices fell so badly last year, though they still posted a 58% gain by the end of the year thanks to stronger demand from emerging markets like China.

And this year promises to be even better.

Automotive Demand Spikes In China, And So Does Platinum Demand

Despite China’s fast-paced growth and quickly expanding middle class, few analysts predicted last year that the country would surpass the U.S. as the world’s largest auto market. Yet thanks in part to the economic crisis, America lost its top spot for the first time since Henry Ford created the assembly line… thereby saving the day for platinum prices.

Car sales in China shot up by nearly 53% to 10.3 million in 2009, while total auto sales – including heavy commercial vehicles – rose 46.2% to 13.8 million units. And while the government certainly fed into that whirlwind of spending with incentive programs, experts still expect the sector to post a solid year-on-year gain of 10 – 15% this year all the same.

Meanwhile, in India, suppliers are struggling to meet soaring demand. Two months ago, car sales jumped by 61% over the previous year and transactions of heavy-duty vehicles doubled. And between April and November, carmakers in India sold 20% more cars than the same time 2008.

Platinum demand from those countries alone weighs in heavily, easily offsetting the feeble U.S. market, not to mention that the commodity has far more uses than just manufacturing cars.

The Platinum Jewelry Market

Much of the demand for platinum comes from the jewelry market, where fashion trends and economic factors have increased interest in the metal.

Even when the West began thinking twice about buying any jewelry in the face of the economic crisis, China stepped in to buy large amounts at the resulting cheaper prices. Analysts expect the final figures to show that Chinese demand for platinum jewelry doubled, once again acting as a counter-weight to depressed consumers elsewhere.

According to Johnson Matthey, the precious metal refiner and consultancy firm, China’s appetite for platinum experienced a “dizzying increase” last year, rising 106% to 1.92 million ounces. And that demand helped worldwide orders rise by almost 80% to 2.45 million ounces… the first annual increase since 2002.

A Brand, New Way To Invest In Platinum

Investment demand for platinum rose right along with other reasons to purchase it in 2009 – up 13.3% from the previous year. And that appetite isn’t expected to go away in the next 12 months either, thanks in part to ETF Securities unveiling the first U.S., physically-backed, platinum exchange traded fund: ETFS Physical Platinum Shares (NYSE: PPLT).

Officially opened to public trading on January 8, 2010, it holds platinum ingots similar to how the SPDR Gold Trust ETF (NYSE: GLD) holds gold. That makes it much more attractive than its two direct competitors – UBS E-TRACS Bloomberg CMCI Long Platinum Total Return ETN (NYSE: PTM) and iPath Dow Jones-UBS Platinum Subindex Total Return ETN (NYSE: PGM) – both of which act as debt instruments that track the performance of the metal instead.

According to its creators, PPLT will start out with $500 million or roughly 329,000 ounces at current prices – a significant figure considering that the commodity’s surplus for 2009 was only about 100,000 ounces. And considering that production from South Africa, Russia and North America remains relatively flat these days, that number should stay significant for some time.

If it attracts individual investors the way SPDR Gold Trust ETF does – as it should – we could see some real fireworks as investors, automakers and jewelers all raise demand for the shiny metal.