Platinum Falls on Concern Auto Sales Weaken; Palladium Declines

By Halia Pavliva

June 24 (Bloomberg) -- Platinum fell to the lowest in more than a week on concern that demand will weaken for the metal used in engine exhaust filters as U.S. vehicle sales may touch a 15-year low this month. Palladium also declined.

Vehicle sales may drop to an annual rate of 12.5 million to 13 million units this month, according to Citigroup Inc. and Deutsche Bank AG analysts. That would be the lowest U.S. auto sales rate since March 1993 and down as much as 20 percent from a year earlier. Platinum mine output trailed demand in eight of the past nine years, metal trader Johnson Matthey Plc has said.

``Supply fundamentals in the complex are being offset by worries that auto sales could fall through the floor in the wake of current gas prices,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said in an e-mailed note. Gas prices at U.S. pumps are hovering around $4 a gallon.

Platinum futures for July delivery fell $14.20, or 0.7 percent, to $2,031.50 an ounce on the New York Mercantile Exchange, after touching $2,026 earlier, the lowest since June 16.

Most-active futures dropped 1.7 percent in the past five sessions, while they are still up 33 percent this year. That compares with a 33 percent gain in all of last year. Platinum reached a record $2,308.80 on March 4.

Palladium futures for September delivery slipped $2.30, or 0.5 percent, to $471.95 an ounce. Most-active futures have gained 25 percent this year, including a 1.7 percent rise in the past five sessions.

Platinum output this year is expected to trail demand by 260,000 ounces, London-based Blue Oar Securities Plc said in a report last month.

Slump in Car Buying

U.S. auto sales have averaged 16.8 million units a year this decade, and are now at ``surprisingly low levels,'' Deutsche Bank analyst Rod Lache said in a report.

Confidence among U.S. consumers fell to the lowest in 16 years and house prices in major cities slid the most on record, raising the risk that consumers will cut back on purchases, according to reports released today.

The Conference Board's consumer confidence index fell to 50.4 in June from 57.2 in May. Home prices in 20 cities dropped about 15 percent in April from a year earlier, S&P/Case-Shiller said, the most since the group began collecting data.

Sales of cars and trucks by U.S. automakers may drop to 14.5 million this year, Lache said. That would be the fewest since 1993, when 13.9 million were sold. From January through May, U.S. light vehicle sales fell 8.4 percent to 6.2 million, according to Autodata Corp. of Woodcliff Lake, New Jersey.

June sales may fall as low as 12.5 million, on an annual basis, according to Citigroup analyst Itay Michaeli.

Dollar Effect

Still, platinum may rise as the weaker dollar and higher crude-oil prices enhance the appeal of the precious metal as a hedge against inflation, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Some investors buy platinum, which is priced in dollars and used in jewelry as well as car and truck parts, to preserve value when the U.S. currency weakens. The U.S. Dollar Index, a gauge that includes the euro and yen among six major currencies, fell as much as 0.5 percent.

``The dollar has a lot to do with it, as well as other factors, such as oil,'' Kaplan said. ``If crude goes up, platinum goes up as well.''

Crude-oil futures rose as much as 1.5 percent in New York.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net