PGM prices uncertain as German auto scrappage scheme also closes

The German version of the "Cash for clunkers" programme which gave consumers more than twice the $3 billion expended in the US to help subsidise the purchase of almost two million new cars is now at an end and some are expecting a decline in the German auto market of as much as 30%

LONDON - 

While gold and silver have rallied sharply in the wake of disappointing economic numbers from the US, platinum and palladium have been treading water as the markets ponder the prospects for the auto sector now that the US' cash-for-clunkers scheme has come to a close, winding up in the evening of Monday August 24th.  Now comes the news that the German scrappage scheme is also finishing.  So what are the prospects for the markets after this recent shot in the arm?

The US scheme resulted in additional sales of 690,000 new vehicles during August.  This took monthly light vehicle sales in August to 1.26 million units, compared with a monthly average in January-July of 827,000 units this year.  Sales in August 2009 were up by just 1.0% on August 2008.  In 2005, the last year of annual growth overall in the sector, the monthly average rate of sale was 1.4 million units - so in the first seven months of this year the auto sector in the US was running at just 60% of 2005 levels.

If the burst of buying in August is worked through so that the overall sales rate in the final five months of 2009 is to run at the average rate of the first seven months of the year - i.e., assuming no recovery yet, then the monthly average rate of sale over September - December would fall to 719,000 units, a drop of 13% on the monthly rate sustained between January and July.

This bearish scenario may well not play out and it is possible that the US auto industry has started on the road to recovery.  While the major auto producers in the US have said that they expect a sharp slowdown in sales in September, a senior manager at Toyota has said that the company is starting to see solid signs of recovery in the sector.  Part of this may be the shift in market share that is developing.  General Motors and Chrysler suffered year-on-year sales falls of 20% and 15% respectively in August, while Ford's sales were up by 17% and the Asian manufacturers all posted substantial gains.  Toyota was up by 6%, Honda gained 10%, Mazda 12%, and Hyundai rocketed by 52%. 

The largest market share was still held by General Motors, at 19%, with Toyota snapping at its heels with 18%.  A year ago, just as the market was entering its major decline, GM's market share was 25%, with Toyota commanding 17%.

While opinions about the outlook are mixed, there is a growing sense that the US auto markets will take a hit in September and October, but that by the end of the year the markets will be back on an even keel with light vehicle sales possibly running at annualised levels in excess of 11 million units per annum.  The annualised rate in January-July was ten million units.  Sales in 2007 were 16 million units, and then declined to 13 million units in 2008.

In Europe, meanwhile, the German scrappage scheme has come to a close after government funding of $7 billion, more than twice the $3 billion expended in the US.  The scheme has subsidised the purchases of almost two million new cars with up to €2,500 ($3,600) per vehicle with the result that registrations in August were up by 28% a year ago (compared with just 1% in the US).  The funds were exhausted on 2^nd September.  Registrations are likely to remain inflated for the next couple of months as only 42% of the two million applications have so far gone through.

German auto markets are not expecting any further aid from the government and are looking for 2010 sales to be weak again.  The head of sales at Volkswagen has recently suggested that the German market could fall to between 2.6 and 2.8 million units next year.  This would be a drop of between 25 and 30% on this year's level.

In France, meanwhile, the scrappage scheme is expected to stretch into 2011 as the French government aims to generate a gradual (and implicitly sustainable) recovery rather than the quick boost administered in Germany and the US.

The automotive sector, beleaguered though it has been, remains a lynchpin of demand for both platinum and palladium.  Platinum offtake in autocatalysts accounted for 48% of net platinum demand in 2008 and 46% of net palladium demand.  These proportions are likely to drop sharply in 2009 as absolute demand for both metals has fallen dramatically.

Palladium demand is likely to stage a better recovery next year than platinum as the US auto sector, which is likely to perform better than the European sector, for example, is much more heavily dependent on palladium than platinum due to much lower diesel penetration in the US industry (although this is slowly changing).  What both markets must expect is a notable increase in scrap supplies next year - partly as a result of, and as one of the hangovers from, the scrappage schemes.  Neither gross nor net demand for platinum or palladium in the auto sector in 2010 is likely to regain the levels of 2008.

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platinum platina je 3000$ by nenad on October 21 2009, 11:36 Find this comment inappropriate? Report it

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