Brenda Bouw Mining Reporter

Vancouver — From Friday's Globe and MailPublished on Thursday, Apr. 22, 2010 7:20PM EDTLast updated on Thursday, Apr. 22, 2010 8:21PM EDT

Platinum and palladium, used in the auto sector and for jewellery, continue to hit pre-recession highs as consumer demand revs up inChina and investors bet on a lasting economic recovery.

Prices for the two metals are also expected to keep climbing this year, despite some surpluses after massive stockpiling last year when prices were much lower.

Platinum, which hit a two-year high of $1,751 (U.S.) an ounce Thursday, is expected to reach up to $1,900 this year, London-based consulting group GFMS said in a report released the same day.

Some analysts say the price of platinum could even go higher, driven by investor demand from new exchange-traded funds for the metals that came on the market earlier this year, coupled with the growth of the auto sector, particularly in China.

Car sales in China are expected to surpass 10 million by 2011, from about 7.3 million last year, Scotiabank commodities market specialist Patricia Mohr said in a report released Thursday.

Platinum and palladium are used as coatings in catalytic converters to reduce a vehicle’s exhaust levels. They are also used in many industrial applications from glass to electronics. The second-largest use for the metals, behind the auto sector, is in jewellery, the majority of which is made and purchased in China.

“China was the massive driver in platinum jewellery last year and will still be the major force in 2010,” according to GFMS consultant Peter Ryan.

Prices for palladium, platinum’s sister metal, are expected to hit $675 an ounce this year, from about $560 today, according to GFMS. Palladium reached a two-year high of $569 on Wednesday.

Palladium and platinum have risen by about 38 and 19 per cent, respectively, so far this year, compared with a 4-per-cent gain for gold.

Palladium is in a better position to grow than platinum this year because it doesn’t face the same supply surplus, according to GFMS.

Palladium’s supply-and-demand balance was even last year was about 7.5 million ounces, while platinum demand of about 6.4 million ounces fell short of 7.3 million ounces of supply.

Still, GFMS’s Mr. Ryan said prices are expected to rise for both, driven again by demand in China and investors looking for what they see as safe investments.

“Platinum sits alongside gold as another store of value,” Mr. Ryan said.

Stocks in the metals are also benefiting from the boost in prices, especially after falling sharply during the recession. Platinum was trading around $800 in late 2008, while palladium sank to around $180.

Some of the major players include South Africa’s Anglo Platinum, which is majority owned by Anglo American PLC, the world's leading primary producer of the two metals. The company, also known as Amplats, produces about 40 per cent of the world's platinum from its South African operations. Other major players include Impala Platinum and Lonmin Platinum.

North American Palladium is Canada's only primary producer of palladium through its Lac des lles Mine near Thunder Bay. Its stock has risen to more than $5 from about $2 a year ago.

“We are quite positive on the platinum stocks at the moment,” said London-based Canaccord Adams analyst Tyler Broda.

The higher prices are also helping ease rising costs for producers. Most of the metals are produced in South Africa, which is also facing issues such as high inflation and is trying to ensure a stable power supply for their mines.

With files from R