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Palladium, Platinum Prices Soar

Story Filed: Thursday, February 17, 2000 6:05 AM EST

LONDON (Reuters) - Palladium sprinted to a new high and platinum touched 12-year peaks on Thursday as Asian traders fought over short supply of metals that car makers rely on to cleanse exhaust gases.

Palladium continued its dizzying run, surging to fix at $725 a troy ounce in early European trade. Platinum reached $573 after both metals jumped the daily limit on the Tokyo Commodity Exchange, which put on measures to cool off an overheated market.

Palladium prices have more than doubled since August and gained nearly 50 percent since the start of the month as car producers scramble to stockpile metal given surging demand for new cars and a dearth of supply from key producer Russia.

``The car producers are worried about long-term supply and they are happy to buy (palladium) irrespective of price,'' said Alan Williamson, head of commodities research at HSBC in London. ``The trouble for them is they can't substitute it.''

Palladium is also used in electronics, and 15 percent of demand is from dentistry, where the industry is looking at substitutes. But 58 percent of world demand of 8.3 million ounces comes from car manufacturers.

Platinum, used in jewelry and in various combinations with palladium and minor metal rhodium in autocatalysts, jumped to its highest since July 1988, driven by anxious shorts covering positions to stem further losses.

``The worldwide car industry is set to increase production significantly this year on higher demand prospect. The car industry PGM demand for its catalytic production will increase the imbalance problem and add further strength to palladium,'' said Frederic Panizzutti, vice-president at MKS Finance.

``We raise our forecast for platinum to $600 and palladium $1,000,'' he said in a market comment.

Williamson said HSBC had upgraded its average price forecast for platinum this year to $450 from $400 and for palladium to $500 from $325.

The latest highs followed TOCOM's announcement that it would keep its daily price fluctuation limit for palladium futures, excluding the spot month, at 80 yen per gram to curb excessive price climbs.

TOCOM has also given priority to orders from ordinary clients at the opening of its morning and afternoon sessions, to prevent panic short covering by professionals from pushing the market limit up too quickly.

But underlying the move is a classic squeeze on supply while demand surges.

``Fund short covering has helped propel the market sharply higher, but the real problem is the lack of Russian supplies,'' said GNI in a note.

Russia, the world's largest producer, has failed to deliver palladium in the first six months of each year since 1997 through bureaucratic red tape, while virtually no platinum was shipped last year as a result of loose wording in a December 1998 law.

Analysts and dealers speculate that part of Russia's palladium stocks might have been used as collateral for loans, putting the metal out of reach of the world spot market. However, palladium could be borrowed.

Dealers said supply of palladium and platinum remained very tight, with no hope of increased deliveries from major producer South Africa, where mines and refineries were at full capacity.

Any pullback in prices was now expected now to be modest, HSBC's Williamson said. Alongside short covering, some players had also been gradually dispensing with long positions, reducing the potential for sharp pullbacks with fewer sellers about, he said.

-- Homer Beanfang (Bats@inbellfry.com), February 17, 2000

Answers

Got my one-year old son some platinum and well-protected country acres for Y2k/Greater Depression preps!

Yeah!

-- Total Doomer (sky@falling.com), February 17, 2000.