David Jollie

By David Jollie
Head of Sales and Market Insight, Anglo American Platinum

Annual demand for platinum from the Chinese jewellery sector has increased by more than ten- fold in the two decades from 1990 to 2009 as this market has developed. Despite this relative maturity, last year saw record demand of 1.75 million ounces of metal (net of recycling) (ref 1),– more than double the figure for the previous year. In part, this exceptional performance was due to the fall in the platinum price during the second half of 2008, but the market dynamics that led to this outcome were rather more complex than this simple statement might suggest.

A short guide to jewellery demand

Net demand for platinum in the jewellery industry can be thought of as composed of three separate components: on the positive side, there are manufacturing volumes for jewellery and any increases in stocks of unprocessed or semi-processed metal anywhere within the jewellery industry. Together, these equate to gross jewellery demand for platinum. On the negative side, of the equation is the return of metal from unsold retail stocks or from previously owned jewellery. The picture is complicated by the possibility of imports and exports (although these are relatively insignificant in comparison to domestic Chinese production for domestic sale) and by the recycling of metal within a jewellery manufacturer (accounted for by treating a manufacturer as a so-called black box and measuring only metal entering and leaving that ‘box’ as affecting demand).

In order to understand the trends in net demand in the jewellery market, therefore, it is ‘only ‘necessary to understand any and all factors that can affect manufacturing demand, anything that can alter sentiment and behaviour in terms of metal stocking or destocking within the jewellery industry, and the driving forces behind recycling within the Chinese market.

Manufacturing volumes

Changes in manufacturing volumes can be viewed from three different perspectives: consumer pull, manufacturer push and supply chain issues, all of which have a bearing on metal demand.

Global demand for jewellery fell from 2005 to 2008 under pressure from rising metal prices. However, 2009 showed a remarkable resurgence in net demand in China and Japan.

Consumer pull

Consumer pull is the most important of these three factors in a normal year. A simplistic view of this market based on this perspective would suggest that a low platinum metal price directly generates additional demand by improving the affordability of platinum jewellery.

Although there is some truth in this model, unfortunately, such conventional wisdom appears to have only a limited relevance in this case.

Plain platinum jewellery (ie without any precious or semi- precious stones)is typically priced in Chinese Yuan per gram across most of China, and keen competition price exists in an individual city. While this does respond to movements in the international price of platinum, it can show a considerable time-lag. Many retailers were slow to reduce prices in the early part of 2009 as they averaged down metal prices on existing stock. Thus, although the metal price had fallen, consumer prices were relatively slow to follow. In some cities, retail prices were therefore still falling even as the platinum price rose in the second half of 2009.

Thus the ‘Economics 101’ argument mentioned above does have some validity when looking at retail prices rather than metal prices: the falling retail price certainly allowed platinum jewellery to compete more effectively against other products that could capture a share of the consumer’s disposable income, boosting demand.

Platinum jewellery can return back into the manufacturing chain when part exchanged for new jewellery or when sold back in booths such as this.

More importantly, though, the retail price of gold moves in very close correlation to the international price of that metal. The gap between the retail prices of these two metals (platinum and gold) therefore narrowed significantly in many cities in China throughout the year. Although gold has a strong emotional and historical connection for many Chinese people, it is sometimes considered more old-fashioned (something that is particularly true for 24 carat yellow gold). Qualitative research by Platinum Guild International (PGI) suggests that platinum has a cachet and an appeal to younger consumers and can be an aspirational purchase. Thus, although the gold market remains much larger than the platinum jewellery market in China, consumer demand for the white metal benefited from this narrow price differential, with platinum becoming relatively more attractive to some consumers as the prices of these two metals approached one another. One clear example could be found by examining the metal of choice for gem-set (diamond-containing) jewellery. Visits to a number of Chinese cities in early 2008 revealed that white gold alloys were gaining an increasing share of the space available in shop counter displays in order to maintain the affordability of these gem-set products as the platinum price rose. However, the fall in the prices of platinum and of diamonds later in the year improved consumer affordability, ensuring that retailers had returned to platinum as the metal of choice by early 2009– both in response to latent consumer interest and in order to maintain profit margins at the retailer. However, there were other factors driving the Chinese consumer’s behaviour. The buoyancy of the Chinese domestic economy during 2009 maintained disposable incomes at high levels in most cities. The ready flow of credit to commercial organisations has been an endless source of interest to Western commentators, but other factors seem to have been more important in fuelling this spending spree on platinum. The strong performance of the Shanghai Stock Exchange may have reinforced the feel-good factor amongst much of the populace, encouraging spending on non-essential items. What feels like a nascent housing price bubble in cities such as Shanghai also seems to have boosted people’s perception of their own personal wealth and thereby contributed additional consumer demand for platinum jewellery amongst other goods.

More surprisingly, the rising platinum price itself was arguably beneficial in driving sales. All precious metal jewellery sold in China brings with it a degree of status and also acts as a ‘store -of -value’. The steady increase in the underlying metal price during 2009 was noticed by some consumers despite the more lethargic movements in the retail price and doubtless contributed a degree of additional consumer demand. As a side note, in the longer term, it will be interesting to see whether the precipitous fall in the platinum price of late 2008 has any effect on the perception of platinum as a “store-of-value”, but this seems not to have been a dominant factor during 2009.

Finally, calendar effects should not be ignored. While it is not trivial to attempt to explain the impact of the Chinese calendar on the number of weddings held in a year in a short article, the huge number of weddings taking place on 9 September 2009 (ref 2, 3) does indicate its relevance. Added to this, the 60th anniversary of the founding of the People’s Republic of China and the fact that Valentine’s Day fell on a Saturday also both appear to have boosted sales of platinum and of other precious metal jewellery. All of this extra consumer demand drove greatly increased volumes at the manufacturing level.

Manufacturing volumes: manufacturer push and supply chain issues

Several years of rising metal prices had driven a slow reduction in stocks of finished jewellery at the retail and wholesale level, and late 2008 and early 2009 provided a good opportunity to rebuild these to previous levels. With consumer interest high, retailers went further and actually expanded their stock levels, confident that they could still turn them over on an acceptable timescale. With sales strong and the economy growing, independent jewellers built new stores in cities where they already operated and also expanded into smaller, less wealthy locations too, generating more sales and taking more stock in the process.

In department stores, where much Chinese jewellery is sold to consumers, the store charges a percentage of turnover as commission from the individual concession- holders. A high gold price and good levels of sales of most jewellery encouraged these larger stores to devote more floor space to jewellery too. It is questionable how much effect this action had on sales of platinum, but it did contribute to the increased levels of stock being held throughout the industry.

High consumer demand also proved beneficial at the manufacturer level. After the relatively weak first three quarters of 2008, the rapid onrush of new demand from retailers drove increased levels of staffing and higher throughput. Many manufacturers became constrained by capacity, ie they could have sold more jewellery than they were able to produce. With manufacturers’ profit margins typically related to the number of grams that a piece weighs, manufacturing of platinum jewellery became yet more attractive than manufacturing gold or palladium jewellery (due to the higher density of platinum compared to these other two metals, a greater weight of jewellery can be produced in platinum than in gold or palladium by the same number of employees, leading to higher profitability), adding a final touch of strength to manufacturing demand for platinum, perhaps at the expense of gold and palladium.

Purchasing of platinum on the Shanghai Gold Exchange -- where much of the metal used in the Chinese jewellery industry is sourced -- increased in the second half of 2008 and remained strong throughout 2009 in response to lower metal prices.

Changes in stock levels

Having noted that changes in the weight of finished pieces at wholesalers and retailers throughout China are already accounted for in manufacturing demand, the question remains as to what factors can impact upon other stock levels. Just as at the retail level, manufacturers responded to several years of rising platinum prices by minimising the amount of metal they owned in raw or finished form or as metal in process in their factories. By the time metal prices reached their peak in mid-2008, these stocks had probably come close to a practical minimum level and, as the price fell, manufacturers bought heavily to rebuild stock levels, adding several hundred thousand ounces to platinum demand in the final quarter of that year and the first half of 2009.

It might be thought that the picture since that date has changed to one of destocking as manufacturers battled to keep stock levels steady in local currency terms against the tide of a rising price. There is indeed some evidence that this is the case at a few manufacturers, but it seems likely that it was outweighed overall by the relatively common Chinese response of buying into (or gambling on) a rising price as noted in a recent article in this journal (ref 4).

Unsurprisingly, the improved profitability of the jewellery manufacturers mentioned above also led to new companies entering this space, adding to inventory late in the year. Some of the larger retailers and wholesalers also built stocks of raw metal both at low prices and as the price rose, in effect hedging their later metal requirements.


According to Johnson Matthey’s figures (ref 1), the amount of metal recycled from old jewellery stock and from second-hand jewellery climbed from 210,000 oz in 2008 to 300,000 oz in 2009. Within this number, it is likely that the amount of metal returned by retailers for remanufacturing actually decreased. This recycling stream is typically composed of rings and other jewellery that has remained unsold due to unattractive design, low manufacturing quality or simply remaining in a showcase long enough to move out of fashion. A number of personal visits to the Chinese market suggest that both design and quality have improved during recent years, leading to lower recycling requirements from retailers. However, more importantly, with retail sales having been particularly strong during 2009 compared to 2008, less stock would have remained unsold for long enough to date the design. With many retailers looking to increase their total stock levels, it may also have been less important to retailers to rationalise existing stock: their efforts would have rather been spent on replacing pieces that had been sold. Looking at the recycling of second- hand jewellery, there are two routes for the metal to return. Many, if not most, retailers will provide credit against platinum pieces handed in as part exchange for new jewellery. The metal thus returned – often from broken pieces or from old-fashioned designs – will usually find its way back into the jewellery manufacturing chain at some point. Hard data is difficult to find on how much metal might be returned through this route, but anecdotal evidence suggests that a rough estimate of 10% of the weight of metal sold in the form of new jewellery could be returned in part exchange. The substantial uplift in retail purchasing of 2009 should therefore have lifted the amount of metal recycled in this way.

The final route for metal to return to the manufacturer is through kiosks purchasing old jewellery. As metal prices have increased over recent years, these have become more widely seen – just as in Japan – and provide a route to sell old or broken jewellery for cash rather than in part exchange. Volumes of metal returning to manufacturers through this route peaked in the first half of 2008 but declined rapidly as the price fell. They have since recovered steadily as the international platinum price has risen, improving the economics of this business and providing an improved return to the consumer selling an old ring.

2010: another auspicious year for platinum jewellery demand in China?

Although the outlook for underlying platinum demand from the Chinese jewellery sector remains positive, it would be greedy to expect another year showing such extraordinary growth. The factors leading to the widespread stock-building seen in 2009 (and late 2008) appear unlikely to be repeated, leading to a closer correlation between gross demand and consumer purchasing. At the time of writing (early February 2010), the raw platinum price is at a substantially higher level than for most of 2009 and purchasing by the Chinese jewellery industry appears to have slowed somewhat as a result, albeit with substantial purchasing occurring whenever the price has fallen. However, the more important issue this year is likely to be the attitude of the consumer. With the Chinese New Year and Valentine’s Day occurring on the same date this year, sales at this time will be important in demonstrating whether underlying consumer demand can grow further from last year’s levels in the short term.


1 David Jollie, Platinum 2009 Interim Review, Johnson Matthey, November 2009

2 Philip Klapwijk, “Will China Overtake India to Become the World’s Largest Manufacturer of Gold?”, The Alchemist, LBMA, January 2009

3 Luo Hualin, “Rush to Register Marriages on Lucky ‘Triple Nine Day’, Women of China, http://www.womenofchina.cn/Iss... y/212512.jsp

4 “China rush on ‘lucky’ wedding day”, BBC, http://news.bbc.co.uk/1/hi/824...

David Jollie is Publications Manager at Johnson Matthey’s Precious Metals Marketing business, based in Royston in the UK. In this role, he has been responsible for writingand producing Johnson Matthey’s twice- yearly review of the platinum group metals markets since 2006.

David has worked at Johnson Matthey since 1997 in a range of positions. His first role was in developing emission control catalysts for both the light and heavy-duty diesel vehicle markets. Since that date, he has focused on market analysis and market development primarily on the demand side of the platinum group metals. David has a degree in chemistry from the University of Oxford and a doctorate in inorganic chemistry from the University of Nottingham.