Slower industrial use, falling investment demand push metal to five-year low NEW YORK (MarketWatch) -- Platinum, which is more expensive and more scarce than gold, has seen prices drop 46% so far this year, beating gold as one of the worst performers of the precious metals. Platinum is often used as a barometer of both economic growth and investment confidence, as it's widely used by automakers and also held by investors. As turmoil roils the global financial system, platinum has been hit hard as the economy slows and investor confidence weakens. And as the global economy slides further into uncharted territory, platinum prices could move even lower, say analysts. "One of the main reasons why platinum prices have declined sharply is the weakness in the auto industry," said Rohit Savant, a metals analyst at CPM Group in New York. "A deteriorating financial environment across the globe has begun to take its toll on demand." Platinum futures in New York surged to an historic high of $2,286 an ounce in March, more than double gold's historic high of $1,003 an ounce hit in the same month. But platinum has since slumped 64%, while gold has fallen 28%. On the New York Mercantile Exchange, platinum for January delivery dropped to as low as $752.10 in October, the lowest level since November 2003. The contract closed at $827.10 Monday. Gold for December delivery ended at $726.80 an ounce. See Metals Stocks. Scarce metal, weak demand Platinum is among the world's scarcest metals. New mine production totaled 5.7 million ounces last year. In contrast, the world produced 60 million tons of new gold and 530 million tons of new silver in the same year. Among the 7 million ounces of platinum the world consumed last year, more than 60% was used by the auto industry, according to CPM Group. Industrial demand is expected to slow this year as global economic growth is seen weakening and auto sales stalling. Platinum is widely used as a catalyst in car engines to reduce harmful tail pipe emissions. Tightening and spreading global emission standards have increased the importance of platinum and other platinum group metals such as palladium. Platinum used in cars reached 4.3 million ounces last year, up 6.5% from a year ago, according to CPM. But this year, demand won't be as robust. Major car companies reported declining sales for October with the auto industry posting its worst monthly U.S. figures in 25 years. In the next 12 months, U.S. car sales could fall to levels last seen during the early 1980s recession, according to some forecasts. CPM estimated that the growth rate of global car sales will slow to 1% this year, lower than the 1.9% it forecasted in May. The decline in growth is a result of the rapid deterioration in the health of the global economy, the consultancy said. Auto production and sales are expected to weaken further in the next year. In addition, there also is a shift in consumer preference toward smaller vehicles, which typically require smaller auto catalyst. Platinum is also used in the electronic industry and as a catalyst in petroleum refining. As global oil demand slows, platinum is getting another hit. Refining and electronics accounted for about 10% of platinum demand in 2007. Slowing investment interest Precious metals are often seen as safe havens that investors buy when the economy falters, but the recent financial turmoil has turned gold and platinum into regular assets that investors have to sell in exchange for much-needed cash. Benchmark gold futures lost 16% in October, the biggest monthly percentage decline since 1983, according to the Nymex data. While the bulk of platinum is for industrial use, investors' interest has also been increasing. Platinum is held by investors for pure investment purposes through exchange-traded funds, physical platinum and futures contracts. Hedge funds, high net-worth individual investors and institutional investment funds had been actively purchasing physical platinum, adding platinum among other commodities to their portfolio. Investors spent more than $2.2 billion buying about 2 million ounces of physical platinum over the past four years, according to CPM. Much of the metal has been bought and stored in Zurich. Investors also buy futures contracts, ETFs and physical coins. ETF Securities' ETFS Physical Platinum , the world's biggest platinum ETF, held about 350,000 ounces of platinum as of May 2008. But as the economy falters, investors, anticipating slow platinum physical demand, reduced their holdings. Total platinum held by ETFs declined sharply between July and September. In futures trading, speculative buying positions on the Nymex also fell in the same period.

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