Platinum, Palladium Fall in New York on Global Demand Concerns

By Halia Pavliva

July 8 (Bloomberg) -- Platinum futures fell to a two-month low and palladium declined in New York on concern that global demand may weaken for the metals used in jewelry and car parts as economic growth slows.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 2.6 percent as the leaders of the Group of Eight industrialized nations said rising energy and food costs pose a ``serious challenge'' to the global economy. Commodities retreated after the best first half in 35 years. Crude oil has fallen 6.5 percent in the past two days.

``There is an ongoing concern over demand prospects,'' said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago.

Platinum futures for October delivery fell $30.90, or 1.6 percent, to $1,952.90 an ounce on the New York Mercantile Exchange, the lowest closing price since May 5. Most-active futures dropped 6.5 percent in the past four sessions.

``Fund liquidation, prompted by fears that the government is going to put the kibosh on commodity speculation sometime in the future, appears to be the culprit,'' said Walter Otstott, a senior broker at Dallas Commodity Co. in Dallas. ``That is the prevailing sentiment for now. Nervousness on what may come out of G-8 is another factor.''

Platinum futures settled below $2,000 an ounce yesterday, for the first time since June 4. Most-active futures still rose 28 percent this year, compared with a 33 percent gain in 2007.

``We continue to recommend adding to platinum longs on any dip below $1,900 an ounce,'' John Reade, the head of UBS AG metals strategy in London, said in an e-mailed note.

Platinum reached a record $2,308.80 on March 4, partly because of output disruptions from South Africa, the source of 78 percent of the world's supply of the metal last year.

Platinum Outlook

``With no disruptions from African mine supplies on the horizon, platinum looks hard pressed for further gains,'' said Ralph Preston, an analyst at HeritageWestFutures.com in San Diego.

More than half of platinum demand is from makers of emissions-control components for car and truck exhaust systems. U.S. auto sales fell last month to the lowest annual rate since 1993, as consumers shunned bigger vehicles and retailers ran short of smaller ones.

Production of platinum has trailed demand in eight of the past nine years, according to Johnson Matthey Plc, a London- based metals trader and manufacturer. Last year, demand exceeded output by 480,000 ounces as global supplies fell to the lowest in three years, Johnson Matthey said in May. South Africa production dropped 4.9 percent, the company said.

Palladium futures for September delivery fell $7.10, or 1.6 percent, to $442.45 an ounce in New York, the lowest closing price since June 12. Most-active futures fell 6.3 percent in the past four sessions, while they still have gained 17 percent this year. The metal gained 12 percent last year.

Production of palladium exceeded demand by more than 1 million ounces in 2007, Johnson Matthey has said. That was the fifth consecutive year of surpluses.

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