Markets Are Tense Over White Metals Shortage
A failure by the Russians to export their usual supplies of platinum and palladium so far this year threatens rare volatility in the world market for the precious white metals.
Palladium prices last week hit their highest levels in 17 years.
Although fears of default on delivery and supply disruption to industry are to date unrealized, dealers said tension may persist through June until there is clear evidence that Russia, the biggest supplier, has begun a delayed 1997 export campaign.
Longer term, the market faces further disruption following a report on Sunday in the China Daily Business Weekly newspaper that China’s auto industry will begin installing catalytic converters in cars in 2000 in a bid to clean up the air in one of the world’s most-polluted countries.
Palladium--least glamorous of all precious metals--has not seen such drama since it was featured in cold fusion experiments that, for a while, seemed to promise a miracle new energy source.
Most of it is used in catalytic converters, dentistry and electronics.
But fueling the turmoil now is speculative interest that has compounded a shortage caused by the absence of Russian supply. The U.S. Tiger Management Fund is said by traders to hold 1.5 million ounces of palladium, or the equivalent of roughly 20% of demand.
Funds may find it hard to unload. Each time they dribble out small parcels, prices start to crumble, said a senior dealer. “The funds have to play this very delicately if they are to have a profitable position,” he said.
Palladium has doubled this year to about $240.00 an ounce. Platinum rose $100 per ounce last week to $500.
Russian officials said last week that exports to the biggest buyer, Japan, will resume June 20, but prolonged delays leave some dealers skeptical.
Russia supplies 60% of world palladium and about 20% of platinum. But fiscal and administrative problems and a possible change in marketing strategy led to the suspension of exports in December.
A General Motors Corp. spokesman said in Detroit on Friday that there is no supply problem for the world’s largest auto maker. Thomas Klipstine said GM has had a strategy for several years to set long-term contracts with a variety of sources.
Ford Motor Co. could not comment because of proprietary technology reasons, but said it is monitoring the market.
But German catalytic converter maker Degussa could face production curbs if the platinum market does not ease up after another three to four weeks, a company executive said.
“That is the warning flag we are raising,” said Ralf Drieselmann, head of precious metals trading at Degussa, which produces 15% to 25% of the world’s catalytic converters.
Market stresses reached boiling point Thursday when the London Platinum and Palladium Market Assn. met to review conditions amid talk of defaults, losses and concerns about speculative positions.
“The members confirmed that there were no defaults in the market,” said Trevor Pitts, chairman of the LPPMA. But, he added, “The key issue really depends on when the Russians begin exporting again.”
Dealers conceded that unless liquidity returned to the market, a default in delivery against contract could not be ruled out.
The market is self-regulated by the LPPMA because the metals are not traded on any official exchange and the Bank of England has no formal regulatory oversight.
