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As the auto industry slides, so do platinum prices

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum, once prized with value due to its rarity, has become one of the worst performers of the precious metals. So far this year, the metal used as an auto catalyst has shed 46 per cent of its value.  This is not a good sign for a metal that is often looked to as a barometer of both economic growth and investment confidence.  

As turmoil roils the global financial system, platinum has been hit hard as the economy slows and investor confidence weakens.  If the global economy continues its downward spiral it is highly likely that we will witness further downside in the metal's value.  

Platinum prices have declined sharply on weaknesses in the auto sector, with more losses extended via the deteriorating financial environment across the globe. On the New York Mercantile Exchange, platinum for January delivery dropped as low as US$752.10 in October, the lowest level since November 2003. The contract closed at US$827.10 Monday.

Last week rang in positive for most of the metals.  Platinum was an exception.  The most active Tokyo platinum contract dropped by its 300 yen daily limit on Friday on a firm Japanese currency and fears of falling demand for auto catalysts as automakers cut sales. The benchmark contract for October 2009 delivery on the Tokyo Commodity Exchange hit a low of 2,450 yen per gram before bouncing to US$2,457 yen, which was 293 yen lower than Thursday's close.

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 ^[2] and 530 million tons of new silver ^[3] in the same year. Among the 7 million ounces of platinum the world consumed last year, more than 60 per cent was used by the auto industry. 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. Platinum is also used in the electronic industry and as a catalyst in petroleum refining. As global oil demand slows, platinum is taking another hit. Platinum interest from an investment stand point is also suffering from declining enthusiasm. 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.

Company news

The labour union at Lonmim Plc ^[4] (LMI), the world's third biggest platinum miner has received a formal notice from the company stating that it may have to cut jobs in the wake of plummeting metal prices. Platinum producers are the biggest employers in South African mining with 168,479 people, or 37 percent of the industry's 458,600 workers, according to the Department of Minerals and Energy. London-based Lonmin has 24,122 employees, most them in South Africa.

Anglo Platinum ^[5] is reviewing all its projects. Upon completion of the review the company will announce its intentions moving forward. It is anticipated that Anglo will both scale back productions and cut some jobs.

Aquarius Platinum Ltd. ^[6], the miner of the precious metal in South Africa and Zimbabwe, reported a fiscal first-quarter loss after prices fell. The loss was $21.5 million in the three months to September 30, compared with net income of $39.1 million in the preceding quarter. Output rose 17 per cent to 128,366 ounces of platinum and related metals. In Johannesburg, Aquarius's shares ended the day up 3.7 per cent. Moving forward, Aquarius' management is investigating opportunities to extend the life of mining resources through joint ventures and acquisitions.