The price of key precious metals used to make catalytic converters for cars--platinum and palladium--have plummeted in tandem with sales of motor vehicles. This year, about 2 million fewer cars and light trucks have been bought compared with 2007. Because platinum and palladium are crucial in the manufacture of autocatalysts, which reduce emissions, demand from carmakers accounted for about half of global consumption of both metals last year.
Upshot: Platinum prices have fallen nearly 60% to an average $990/ounce this month since peaking at $2,290 in March, sinking below $1,000 for the first time in almost three years. Palladium prices averaging $200/oz so far this month have dropped by two-thirds from a seven-year high of $590 in March. A Barclays Capital report says “palladium prices have traded lately at their lowest levels since October 2005 and, similarly to platinum, softer vehicle sales are likely to add further downward pressure to prices.”
A Financial Times report says investors have reduced their positions right across the range of commodity markets. However, analysts at Macquarie say the sell-off and prices declines may have been overdone. They note that supply disruptions in the platinum market remain likely, due to serious problems in South Africa's electricity market. Still, Macquarie analysts have cut their price forecasts for the next two years: Its 2009 forecast for platinum has been reduced from $1,950 to $1,550, down from $1,610 this year, and for palladium from an average of $450 next year to $325, down from $353 this year. The Barclays Capital outlook is more bearish, seeing platinum next year at $1,250 and palladium at $250.
