Commodities & Futures: Catalysts put platinum in a twist

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The Independent Online
THE platinum market has been twisting to rival American songster Chubby Checker. In the past month the precious metal has gyrated between six-month highs and seven-year lows with ease.

On Friday it closed in London at dollars 344.30 an ounce, down about dollars 4 in the week but about dollars 35 below its mid-February levels.

Platinum is considered one of the precious metals, but it is used in the car industry as well as made into jewellery and bars for investment. Forty per cent of the platinum used every year goes towards making catalytic converters, also called autocatalysts, which reduce car pollution.

It is the metal's use in autocatalysts that has set the market into a tailspin. South African mine owners, Japanese car makers and London metals analysts are all talking about claims of new catalyst technology and wondering how much platinum will be needed in the recession-wracked world car industry.

A news agency story published a few weeks ago triggered the commotion. It suggested that Nissan and Toyota were planning to use platinum from their own stores for autocatalysts, rather than buy supplies from Russia, because of slumping revenues from car sales. It also said they would sell stocks of platinum and two other metals in the same family used as autocatalysts, palladium and rhodium.

On futures markets in New York and Tokyo, platinum prices fell dollars 10 an ounce and palladium fell nearly dollars 8 to dollars 101. Palladium consumption for autocatalyst use is only 12 per cent, but it is also used as a dental alloy and in the electricity sector.

Palladium's fall was all the more startling as it had recently scaled two-and-a-half-year heights of dollars 119 amid concerns that Russian supplies, which account for half the world's palladium output, would be held back by bureaucracy and distribution wrangles.

Most of Russia's supplies come from the Noril'sk mine in northern Siberia - a mine suffering from shortages of equipment, food and capital, and where labour disruptions are likely.

A report that the US catalyst maker, Allied-Signal, had developed a new catalytic converter using only palladium caused a further slump in platinum to seven- year lows of dollars 335 in late February.

Producers are angry. Last week the chairman of Impala Platinum of South Africa, the world's second biggest platinum producer, complained bitterly about the statements from industrial companies, which he clearly believes are manipulating the platinum market. Platinum's price falls in reaction to news on new autocatalyst technology directly hit producer revenues.

Platinum is in surplus worldwide. Rhona O'Connell, an analyst at the broker Williams de Broe, says as long as that remains the case the metal's prospects depend on the Japanese economy and the revival of the world car industry.

The emission control sector is growing steadily as clean air laws are passed or tightened in many nations. Ms O'Connell calls the autocatalyst market the 'linchpin' for platinum use.

If you've ever taken a trip to Mexico, Brazil or Korea - countries with phenomenal urban pollution problems - you may be relieved to learn that car catalysts are being fitted there.

In America, tougher emission laws have been passed and more platinum group metals will be used per car. Europe is following the US, but slowly. The key to platinum use in catalysts is the pace of economic recovery, which should stimulate car sales.

Japan accounts for 44 per cent of world platinum demand, with a tradition of platinum jewellery buying and investment. Whether the metal is favoured because it flatters the Japanese complexion, because an Emperor once decreed that the rich should not wear showy gold jewellery, or because of a wartime restriction on national gold holdings, platinum is popular with young and old.

But the economic downturn has also strained the Japanese jewellery sector. Consumers are buying lighter weight, less expensive jewellery and the luxury end of the market has suffered.

Andrew Smith, metals analyst with Union Bank of Switzerland, said platinum group metals were volatile because they were traded mostly on long-term private contracts, and futures market business was thin. 'Platinum is much more volatile than gold and silver and can make for an exciting ride if you can get it right,' he said.

But Sabre Fund Management of the UK, which trades metals in its futures funds oriented towards institutional users, believes it is not for the faint-hearted.

Joint managing director Robin Edwards said: 'We have traded platinum a bit over the last year, at a small cost. Platinum has been in a volatile trading range of about dollars 50 and is a tricky customer.'

(Photograph omitted)