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Platinum's Outlook Shines

The metal could reach a record high in the next few months.

Demand for platinum from exchange-traded funds could push the price of the precious metal to an all-time high of $1,400 within the next six months, according to a new report published Monday by U.K.-based refiner and marketer

Johnson Matthey

.

Spot platinum prices spiked briefly to a record of $1,390 an ounce back in November, but they subsequently retreated to $1,324 by Friday afternoon in London.

The report, titled

Platinum 2007

, says the supply-and-demand balance for platinum will be tight during the first half of the year because of lower-than-expected production from South Africa and problematic Russian exports.

Although two platinum ETFs have already been

launched in Europe, they have been relatively modest in size so far.

Then again, so were the non-U.S. gold ETFs until the introduction of

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, which has seen almost 500 tons of gold taken off the market since it launched in November 2004.

Likewise, if a U.S.-based platinum ETF were to gain approval, it "would likely impact the price level," says Ellen Zadoff, market research manager for North America at Johnson Matthey in Wayne, Pa., and one of the report's authors. Still, she adds that introducing a U.S. ETF isn't a certainty by any means.

"Regulatory approval in the U.S. may be tricky," she says. "The government has a duty to protect the public from excessive risk, and there could also be opposition from the major users of the platinum group metals, such as the auto companies."

Even without the presence of ETFs buying, industrial uses for the metal were robust in 2006, the report says. Last year, overall demand for platinum totaled 6.8 million ounces, up 1% from 2005. Higher usage in automobile catalytic converters should offset declines in jewelry demand.

Platinum use in vehicles grew 10% to 3.3 million ounces in 2006, from 3 million ounces a year earlier. The portion of the total supply destined for jewelry fabrication slipped by about 360,000 ounces to 1.6 million ounces.

Volatile spot prices negatively impacted consumer buying, and high prices prompted a marked increase in the recycling of old pieces in Asia.

The remaining platinum demand comes from glass manufacturing and petroleum refining. It's also found in electronic components and the chemical industry.

Supply of the metal grew only 2% in 2006, with the gains coming from South Africa, which accounts for three-fourths of all global output. Added supply is forecast for later in the year.