Poor auto market causing grief to platinum prices

By Leia Michele Toovey – For Platinum Investing News

It was a tough day on the markets for precious metals. The worst-affected was Platinum. It took a 6 per cent plunge, while gold dropped by over 2 per cent, and silver by 5 per cent. The drop was instigated early on in the session as economic worries prompted Asian traders to sell off metals.

Benchmark Tokyo platinum futures fell by their daily limit to a one-year low. Platinum closed in New York last night around $1,390, and this morning hit a low below $1,300. Spot platinum was at $1,317.50/1,337.50 against $1,386.00/1,406.00 an ounce late in New York, having earlier touched a session low of $1,296.50.

Platinum is facing pressure from fears of an economic slow down that could dent demand from the automotive industry. The latter consumes more than half of the world’s platinum. A weakening in the oil prices is also weighing heavy on the precious metal, reducing its attraction as a hedge against inflation. Oil slipped towards $112 a barrel after a tropical storm in the Gulf of Mexico, a hotbed of oil installations, passed without disrupting production there. The combination of softer oil prices and a gaining dollar will keep a lid on platinum prices, feel analysts.

The most active Tokyo platinum contract sank by the daily 300 yen limit to its lowest level in nearly a year on Tuesday. The benchmark contract for June 2009 delivery on the Tokyo Commodity Exchange dropped to 4560.47 yen per gram, its weakest since late August 2007, before bouncing to 4571.58 yen. The slump in platinum pushed Impala Platinum and Anglo Platinum shares down. Impala, the world’s second-largest platinum producer, retreated $1.64, or 5.7 per cent, to $27.28. Larger rival Anglo Platinum was down for the third day in a row with a drop of $5.59 or 5 per cent, to $107.48.

The recent decline in the price of metals comes as a surprise to many, given the talk at the beginning of this year of how gold would hit $1300 and platinum $3000. It is the second half of the year but neither of these metals are near measuring up to predictions. Platinum is only 9 per cent above its level as compared to this period last year, and it has given up 79 per cent of the gains since March. Gold is not performing as poorly as platinum, but is still not living up to expectations. It is currently trading 21 per cent above its levels a year ago, having given up 38 per cent from its March high.

BHP Billiton CEO Marius Kloppers put the kibosh on rumours that the company was preparing to bid for Impala platinum. Speculation of a bid stirred when former Impala CEO Keith Rumble was appointed on the BHP’s board. While platinum mining activities are indeed of interest to BHP, Kloppers seemed to rule out Impala as a target because of some of the inherent dangers to personnel working underground in South Africa’s platinum mines. Almost all of Impala’s production is from underground mines. BHP does not want its global record tarnished by South African mine fatalities to which the platinum sector seems prone, because of the labour intensive, narrow-working type of mining used. On to other BHP acquisition rumours, when questioned about the possibility of sweetening the bid for Rio Tinto, Kloppers’ comment was, “You pay what a company’s worth. BHP’s continuing growth has anyway, in effect, already raised the value of the bid Vis-a-vis Rio’s performance.”

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