The price of precious metals used to make cars, platinum, palladium and rhodium, have plummeted in tandem with sales.
The slowdown in US car sales, which were 23 per cent lower last month than in September 2007, has been dramatic. This year, about 2m fewer light vehicles 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.
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Investors, scared by the slump in car sales, have sold holdings of platinum and palladium in exchange traded funds (ETFs), which has exacerbated the price slide. Holdings in platinum ETFs reached a high of 484,000 ounces in July, equivalent to more than 7 per cent of last year’s global supply of 6.55m ounces, but at least half of that metal has come back onto the market.
Platinum prices have fallen nearly 60 per cent since peaking at $2,290 a troy ounce in March, and sank below $1,000 this week for the first time in almost three years.
On Friday platinum closed at $950. Palladium prices dropped by two-thirds from a seven-year high of $590 a troy ounce in March. They closed at $194 on Friday.
Not one investor in the single palladium ETF is sitting on gains now the spot price is trading at more than $100 an ounce below its level in April 2004 when the fund was launched.
Palladium ETF holdings reached a high of 703,000 ounces in July, equivalent to more than 8 per cent of last year’s global supply. Liquidation of these holdings has speeded up as prices have continued to weaken.
Analysts argue that the metals’ long-term prospects are less gloomy. However, in the face of a sharp slowdown in consumer spending and this summer’s sell-off, investors have reduced their positions right across the range of commodity markets.
Analysts at Macquarie say the sell-off has been overdone. They note that supply disruptions in the platinum market remain likely, due to serious problems in South Africa’s electricity market.
Macquarie warns that a “sedate recovery” from current price levels is more likely than a bounce, and has cut its price forecasts for the next two years. Its 2009 forecast for platinum has been reduced from $1,950 an ounce to $1,550 and for palladium from an average of $450 an ounce next year to $325.
For rhodium, Macquarie has revised its 2009 price forecast down from $8,500 an ounce to $5,500 while aluminium is now expect to average $2,866 a tonne instead of $3,108.