Platinum Prices Sink on Auto Industry Woes

ReutersA worker pressing an ingot of platinum at the Krastsvetmet nonferrous metals plant in Krasnoyarsk on Wednesday.
The U.S. and European automobile industries are screeching to a halt, and they're leaving behind a string of casualties -- not all of which are obvious.

Prices for platinum, which 18th-century French monarch Louis XV is said to have called the only metal fit for a king, have fallen 66 percent from their high in March of $2,276 per ounce to as low as $769 last week. And while coronations have fallen off sharply in recent centuries, weakening demand from carmakers is the culprit behind platinum's plummet.

Still popular among jewelers, platinum's primary use now is as a catalyst in auto exhaust systems, and Russia -- the world's second-largest producer of the metal behind South Africa -- shouldn't expect to see any recovery, at least not in the short term.

"The fear is that due to an economic slowdown, platinum demand may slow down next year, which could keep prices at a relatively distressed level," said Mikhail Stiskin, a metals analyst at Troika Dialog.

There's hope that platinum prices could return to earlier levels eventually, he said, but a short-term stabilization around current levels is likely.

On Friday evening, platinum for immediate delivery was trading at $820 on the London Metals Exchange -- a fall of 2.3 percent on the week. Nonetheless, it was an improvement from Thursday, when the weekly decline was at more than 7 percent.

And with carmakers accounting for 60 percent of global consumption, according to metals and chemicals company Johnson Matthey, the rebound may still be a long time coming.

Last week, the heads of General Motors, Ford Motor and Chrysler personally traveled to Washington to ask Congress for a $25 billion bailout to help them stay afloat. The three companies' U.S. sales have fallen 21 percent this year, and GM and Ford have lost a combined $30 billion.

But the CEOs got an angry reaction from some lawmakers after Senator Harry Reid noted that all three arrived on corporate jets, and a decision was put off until the companies provide a more detailed plan of how they would use the money.

On a brighter note, China's auto industry is still expected to expand next year, and new environmental regulations in Europe will give platinum an edge in the production of filters that reduce diesel particulate emissions.

Johnson Matthey forecasts a 2.3 percent decrease in platinum demand for 2008, but the year has not been all that bad for the metal. Demand still appears to be outpacing supply, which is headed for a 4.2 percent drop, and the Chinese market may provide some cushioning for U.S. losses.

David Jollie, author of Johnson Matthey's Platinum 2008 Interim Review, published last week, said it was too soon to determine where next year's prices would go, even as some 2009 forecasts predict a flattening of production.

"It's extremely difficult to forecast what's going to happen to these markets," Jollie said. "In terms of autocatalysts, China and Europe will make up for some of the weaknesses in North America, but it's difficult to say where 2009 as a whole will end up."

In terms of output, Russia lags behind South Africa, a country responsible for 76 percent of global platinum production. Norilsk Nickel is Russia's largest producer of the metal, although UralPlatinum Holding, a company part-owned by billionaire Viktor Vekselberg, took a big step toward closing the gap this month.

The company discovered the largest platinum deposit in Russia since the Soviet era, with some 250 tons of the metal, or half of Norilsk's reserves, Kommersant reported. Development of the deposit on the Kola peninsula could take pressure off of Norilsk's declining ores, but it will still take years -- and considerable outlays -- before production there begins.

In another move that could help strengthen Russian platinum producers' positions on global markets, the State Duma on Friday abolished the government's monopoly on exports of the metal, all of which currently all through Almazjuvelirexport.

Norilsk Nickel finished the week down 18 percent in London and 15.5 percent on the MICEX. The ruble-denominated MICEX Index fell 12.7 percent for the week, while the dollar-denominated RTS Index declined 10 percent.

Norilsk Nickel has fallen a whopping 61 percent on the MICEX since Sept. 1.

There is, of course, a silver lining to lower platinum prices.

"It makes jewelry more affordable for consumers," Jollie said. "Platinum is a very expensive metal, and people try to thrift it if they can."