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When it comes to prices, PGMs are along for the ride

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When the rubber hits the road, catalytic converter consumption-and, by extension, platinum group metals use-hinges on the ability of automakers to show that production numbers are rebounding.

The bad news is that auto demand, especially in the developed world, is expected to be down again this year. But once things do improve, platinum group metals use could accelerate quickly as many of the major automakers have been actively destocking precious metals during the past six months.

Automotive catalytic converter manufacturers provide the principal demand for platinum group metals (PGMs) each year, accounting for some 60 percent of available platinum and palladium and as much as 85 percent of rhodium supplies.

Kim Korth, president of Grand Rapids, Mich.-based consultant IRN Inc., expects the first-quarter seasonally adjusted annual rate of production in the United States to be in a range of 10.5 million to 11 million vehicles. A bad year for U.S. auto production is considered to be 12 million to 12.5 million vehicles and a good year 16 million units, she said.

J.D. Power & Associates, Westlake Village, Calif., forecasts light vehicle sales in Western Europe will fall 10 to 11 percent in 2009 due to difficult economic conditions, expensive financing and sullied consumer confidence. "While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil," said Jeff Schuster, J.D. Power's executive director of automotive forecasting.

China's automobile sales totaled 9.38 million vehicles last year, a 6.7-percent increase from 2007, according to the country's Ministry of Commerce and the China Association of Automobile Manufacturers (CAAM). The 2008 sales growth rate was the slowest in the past decade, but CAAM is still forecasting growth of around 5 percent in 2009.

"The outlook for car sales is difficult to forecast, but demand is expected to weaken in Asia and remain depressed in North America and Europe," according to London-based metals refiner Johnson Matthey Plc. "As a consequence, global car production in the first quarter of 2009 could be 25 percent below last year."

But several other analysts said the downturn in the automotive sector has already been factored into platinum group metal prices. Platinum group metals were "way oversold" in late 2008 because investors were assuming a sustained "doomsday scenario," analysts at New York-based JPMorgan Chase & Co. said.

A consistent uptrend in PGM prices and demand will be predicated only on positive growth prospects for the global economy and a consequent rise in auto sales, said Patrick Magilligan, a precious metals analyst at recycler A-1 Specialized Services & Supplies Inc., Croydon, Pa. "The collapse in vehicle sales, particularly in the larger, developed markets, has eliminated a sizable portion of demand for these metals, a situation which is not likely to improve in the foreseeable future," he said.

PGM prices are expected to remain depressed at or near current levels at least through the first half of 2009, Magilligan said, but added that at the first sign of a recovery in the auto market speculative interest likely will take prices higher.

"A perfect storm of minimal consumer inventories, reduced availability of both primary and secondary supplies, a potentially weaker dollar and growing investment interest could spur prices for PGMs rapidly once any indication of a turnaround in the auto sector is noted," Magilligan added. Tom Jennemann


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