PGM Outlook Tied to Speed of Japan's Recovery


"Japan's auto industry faces hurdles, but not significant production-capacity damage."

The outlook for platinum group metals is increasingly tied to the speed of Japan's recovery, says Goldman Sachs. A selloff in PGMs accelerated after the Japanese earthquake, with platinum prices down 5% and palladium prices down 9% this week, Goldman says in a Friday.

PGMs previously softened as oil prices rose due to Middle East-North Africa unrest. However, the most recent declines in PGMs are the result of potential loss of auto-catalyst demand from idled automobile manufacturing in Japan, Goldman says.

"Not only does Japan account for 12.6% of global automobile production, it also accounts for a large share of global industrial PGM consumption: 16.4% for platinum and 18.1% for palladium in 2010," Goldman says.

Auto analysts with Goldman do not expect significant production-capacity damage, but do list two hurdles for car output. These are output disruptions due to power shortages, as well as supply-chain issues as parts suppliers face ongoing problems in the aftermath of the massive earthquake and tsunami that hit Japan last week.

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