Platinum hit by GM cutbacks

Platinum tumbled on the New York Mercantile Exchange in late 1991 after General Motors announced that it intends to shut down 21 of its North American automotive plants.

Expectations that the GM closures will weaken demand for platinum sparked heavy selling in Tokyo and drove the price of the metal down. At presstime, platinum was trading below US$335 per oz.

Platinum is a major component of catalytic converters which are used by the auto industry to reduce emissions from car exhausts. As GM is the world’s largest auto maker, any production cuts are expected to have a negative impact on the platinum market.

In August, news that Japanese car maker Nissan had developed a platinum-free exhaust catalyst drove the price of platinum below gold for the first time since 1986 as Japanese investors moved to liquidate their holdings. The GM cutbacks come at a time when demand for platinum has already been reduced by weaker economies worldwide, said Kurt Barnes, an analyst at Toronto-based Inco (TSE). He expects the GM cutbacks to be offset by the introduction of greater pollution controls in Europe as car manufacturers there respond to public pressure.

Before the announcement by GM, analysts were predicting that platinum prices will climb throughout the 1990s as the Japanese continue to buy more platinum jewelry which accounts for 35% of the metal’s total market. The Japanese are responsible for 90% of that market.