(Recasts, updates with closing prices, market activity, changes
dateline from LONDON)
By Frank Tang
NEW YORK, Feb 19 (Reuters) - Platinum and palladium surged
to new highs on Tuesday, signaling an extremely tight platinum
market due to supply issues in South Africa and growing demand
for the metals as autocatalysts amid a booming global auto
industry.
Gold also rose toward its record peak, boosted by a host of
bullish factors including inflation fears stirred by $100 a
barrel crude oil, a lower dollar and a rally in platinum group
metals prices.
Spot platinum <XPT=> hit a high of $2,160 an ounce before
trimming gains to $2,140/2,150 at 4:19 p.m. EST (2019 GMT),
against $2,105/2,115 late in London on Monday. It has gained
more than 40 percent this year on worries about a widening
market deficit.
"Inflationary pressures from rising crude oil, other farm
commodities and presumably lower interest rates are all fueling
the rallies in gold and platinum," said George Gero, vice
president of RBC Capital Markets Global Futures in New York.
Gero also cited a deep backwardation in the platinum futures
market, indicating supply tightness in the near term.
Backwardation occurs when the price of nearby cash delivery
rises above the price for forward delivery.
The active NYMEX platinum contract for April delivery <PLJ8>
settled up $89.40 or 4.3 percent at $2,153.10 an ounce after
hitting a record high of $2,174.00 in overnight trade.
"The sky is the limit because I don't think that the full
effect of the supply disruptions has been fully factored in,"
said Daniel Hynes, metals strategist at Merrill Lynch.
"This rally could go on for a while. We are going to see
this market remain extremely tight. There is bound to be a bout
of profit taking, but I think that will be very short-lived."
Mines across South Africa, which accounts for 80 percent of
global platinum supply, have been hit by a lack of energy after
state utility Eskom [] asked the mining sector to cut
power use to 90 percent of normal needs to ease shortages.
Supply issues have sent platinum's end users -- including
automakers, jewelers as well as investors from banks to
exchange-traded funds -- scrambling for the metal, bidding up
prices in an already tight market.
The world's No. 1 platinum miner Anglo Platinum <AMSJ.J> has
said power problems would cut output by 120,000 ounces in 2008,
while Impala Platinum <IMPJ.J>, the world's No. 2 producer,
forecast "very tight market conditions."
More than 60 percent of the world's platinum output is used
as catalyst in vehicles, helping to clean exhaust fumes, while
nearly 25 percent goes to jewelry making.
Jewelry demand was badly hit because of high prices, dealers
said, adding individual investors, specially in Asia, had been
selling platinum for strong returns.
Despite strong prices, dealers said platinum borrowing rates
had been steady at 9 percent since January. They usually rise
when there is a shortage in the physical market.
PALLADIUM AS SUBSTITUTION
Lofty platinum prices stirred strong buying interest in
sister-metal palladium as a possible substitute autocatalyst to
help cleanse environmentally damaging fumes from motor exhausts,
Steel said.
Palladium <XPD=> tracked platinum, hitting a high of $491 an
ounce and was last quoted at $491/494, against its previous
close of $466/470 on Monday.
Until recently, only platinum was used in diesel engines,
but new technologies allow the use of up to 25 percent of
palladium in diesel autocatalysts.
In early 2001, palladium had surged above $1,000 an ounce
because of fears that top supplier Russia would not deliver
supplies to the market.
"I think palladium is being dragged up by platinum, not
because it's strong in itself," Steel said.
Inflation worries because of a sharp spike in crude oil
prices and concerns about an overheated economy in China boosted
gold's appeal as a hedge against inflation. U.S. crude futures
<CLc1> settled up $4.51 at $100.01 a barrel.
On Monday, China said that its consumer inflation rate
surged in January to an 11-year high of 7.1 percent, government
data showed.
Gold <XAU=> rose to a two-week high of $929.90 an ounce on a
weaker dollar and was at $927.00/927.80 by New York's last quote
of 2:15 p.m., against Monday's $903.00/903.80 and a recent
record high of $936.50.
Silver <XAG=> rose to $17.45/17.50 an ounce from its
previous finish of $17.00/17.05.
(Additional reporting by Atul Prakash in London and Lewa
Pardomuan in Singapore, editing by Matthew Lewis)
