ETFs seen drawing 150,000 oz platinum in '08

An employee of Tanaka Kikinzoku Jewelry K.K. displays a platinum bar at the company's store in Tokyo January 29, 2008.

NEW YORK (Reuters) - Sharp gains in platinum prices are boosting investor demand for exchange-traded funds in platinum group metals (PGMs) and will result in the funds significantly increasing their holdings of the precious metals this year, platinum specialist Johnson Matthey Plc (JMAT.L) said on Monday.

Timothy Murray, U.S. general manager of precious metals marketing for Johnson Matthey, said he expected 100,000 to 150,000 ounces of platinum and "a couple hundred thousand" ounces of palladium to be absorbed by PGM exchange-traded funds (ETFs) by the end of this year.

"We would expect more investment into platinum ETFs this year, (although) at a more moderate rate" compared with last year, Murray told the audience at the presentation of the industry report "Platinum 2008 Review" in New York on Monday.

London-based Johnson Matthey, the world's top platinum refiner and distributor, said in the report that total investment demand for platinum totalled 170,000 ounces in 2007. The company also expected a "substantial deficit" in the overall world platinum market in 2008.

Murray said that the amount of platinum used to back ETFs had been increasing at a "scary rate" in the beginning of 2008.

The rising popularity of the platinum ETFs has created upward price pressure as the larger fund holdings kept more of the white metal off the physical market and tightened global liquidity, Murray said.

Platinum surged 50 percent from the start of the year to hit a record high of $2,290 on March 4, due to power cuts in South Africa that forced mines to shut for five days in January. Some mines are still operating below full electricity supply. In 2007, platinum rose more than 30 percent.

Spot platinum was quoted at $2,140 an ounce on Monday, while U.S. platinum futures for July delivery ended at $2,158.20.

Murray said that the current platinum futures market remained liquid in spite of a backwardation and supply squeeze early this year. Backwardation occurs when the price of nearby cash delivery rises above the price of forward delivery.

Also, Murray said that the platinum ETF listed in Zurich was more oriented toward institutional clients such as large pension funds, while the London-based ETF has a more retail investment influence.

Zurich Cantonal Bank has both a platinum ETF (ZPLA.S) and palladium ETF (ZPAL.S) listing in Zurich, while London-based ETF Securities is the only other company in the world with a platinum-backed ETF (PHPT.L).

(Editing by Jim Marshall)