Platinum, Palladium Fall in N.Y. as U.S. Auto Sales Plummet

By Halia Pavliva

July 2 (Bloomberg) -- Platinum and palladium fell after U.S. auto sales plunged in June, fueling concerns that demand for the metals used in car parts will slow.

General Motors Corp., Toyota Motor Corp. and Ford Motor Co., the top three in U.S. auto sales, reported declines yesterday as consumers shunned larger vehicles. The industry's 18 percent drop in U.S. sales was the steepest in almost six years and pushed the annual rate to the lowest since 1993. Platinum fell for second time in the past five sessions.

``The noble metal cannot ignore the scary numbers coming from auto dealer lots in the U.S. -- the worst in a decade,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said via e-mail. ``Every car not sold could eventually result in a car not produced and a few less grams of platinum, palladium, rhodium not taken from the market.''

Platinum futures for October delivery fell $11.70, or 0.6 percent, to $2,077 an ounce on the New York Mercantile Exchange. Most-active futures gained 3.2 percent in the past five sessions. Platinum, which is also used in jewelry, reached a record $2,308.80 on March 4.

Carmakers such as GM said they ran short of smaller, more fuel-efficient cars last month, further depressing sales. Catalytic converters used to remove noxious chemicals from the exhausts of large and small engines contain an average 4 grams of platinum or related metals such as palladium or rhodium.

Some analysts also cited slowing demand for precious metals in China, which accounts for 49 percent of platinum used in jewelry.

Chinese Demand

``We are becoming increasingly concerned about China slowing and its impact on metal demand,'' John Reade, the head of UBS AG metals strategy in London, said in an e-mailed note. ``In an interesting e-mail conversation with the head of trading at a major Chinese precious metals company over the weekend, weakness in the equity market was cited as one of the main factors behind a sharp turn down in appetite for precious metals in China in the past couple of months.''

Platinum futures have climbed 36 percent this year, partly because of supply disruptions from South Africa, a source of 78 percent of the world's supply of the precious metal last year. Lonmin Plc, the third-largest platinum producer, said earlier this week that it will shut its Number One smelter furnace in South Africa for about seven days for repairs after a water leak was detected.

``It's just profit taking today,'' said Walter Otstott, a senior broker at Dallas Commodity Co. in Dallas. ``We will still go higher. There are still electricity shortages in South Africa and the infrastructure in the country is horrible.''

Platinum may trade between $2,400 and $2,500 an ounce by year-end, Otstott said.

Price Outlook

The metal will average more than previously expected this year and next, bolstered by a widening supply shortfall, Commerzbank AG said in an e-mailed report today. In 2007, most- active futures averaged $1,314.76 an ounce, Bloomberg data show.

Futures will average $2,000 an ounce this year, compared with a previous forecast of $1,850, the bank said. Platinum will average $2,125 next year, from an earlier estimate of $1,650, Commerzbank said.

Production of platinum has fallen short of demand in eight of the past nine years, according to Johnson Matthey Plc, the maker of one-third of catalysts used in auto parts. The deficit is expected to be 260,000 ounces this year, London-based Blue Oar Securities Plc said in a report in May.

Palladium futures for September delivery fell $2.05, or 0.4 percent, to $470 an ounce in New York. Most-active futures rose 1.1 percent in the past five sessions and have gained 24 percent this year.

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