The Department of Minerals and Energy's second Minerals Bureau Bulletin for this year indicates that global demand for palladium used in the manufacture of jewellery surged from 7.8 t in 2003 to 28.6 t in 2004 thanks to the rapid introduction of palladium jewellery in China.

Chinese jewellers pushed up purchases of palladium to 21.8 t as a result of the need to build stocks as this is a new jewellery sector.

Most of these purchases were used to manufacture palladium jewellery, but the report indicates that some went into other jewellery types.

At the forefront of developing this sector were the manufacturers, and in the first quarter of last year, retail prices of platinum jewellery did not keep pace with the rapid increases in palladium prices.

This resulted in a reduction in manufacturing margins and, as a result, several companies diverted a portion of capital towards the production of palladium pieces.

"With the initial profit margins on palladium jewellery at least five times those on platinum, the number of fabricators giving production of the former a trial quickly increased," reports the DME.

While the introduction of palladium jewellery at the retail end of the market was largely confined to second-and-third tier cities, stores had to market the product successfully.

Fewer retailers in the largest – and most affluent – cities decided to stock palladium jewellery, however, as in cities such as Beijing and Shanghai, platinum's status has been reinforced as the metal of choice.

This meant a lack of display space for a product that could detract from platinum, and marketers had to tap into the need by consumers for affordable, white jewellery by promoting palladium on the basis that it shares a number of attributes with platinum.

As plain jewellery is priced per gram of metal, palladium's low density also ensured its competitiveness.

The result was a high presence of palladium in provincial cities, stealing sales in these areas from jewellery made of white gold, platinum and even yellow gold, but adding to the total precious jewellery market.