Palladium Has Biggest Two-Day Drop in 12 Years; Platinum Falls

May 20, 2010, 3:10 PM EDT

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By Millie Munshi and Nicholas Larkin

May 20 (Bloomberg) — Palladium futures plunged, capping the biggest two-day slump in 12 years, on concern that demand will dwindle amid dimming prospects for the global economy. Platinum tumbled the most since December 2008.

Europe’s debt crisis and slowing growth in China may erode consumption of the metals used mostly for pollution-control devices in cars. Ford Motor Co.’s deliveries in main European markets fell 17 percent in April, the first drop in 11 months. In two days, palladium dropped 19 percent, the most since May 1998. Before this month, the price surged 36 percent in 2010.

“Prices had gotten extended way too high, and it left the metal particularly vulnerable to changes in the economic situation,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “People are looking at the overall macro picture now and thinking things are not going to be as good as they had hoped.”

Palladium futures for June delivery fell $50.75, or 11 percent, to $408.95 an ounce on the New York Mercantile Exchange. Yesterday, the metal tumbled 9.3 percent on record aggregate volume of 14,684 contracts. As of 2:34 p.m., estimated volume was 11,439 contracts. The two-day price drop was the biggest since May 1998.

Platinum futures for July delivery dropped $109.90, or 6.8 percent, to $1,495.80 an ounce, the biggest drop for a most- active contract since Dec. 1, 2008. Earlier, the metal touched $1,490.30, the lowest level since Feb. 12. The price has tumbled 14 percent this month.

Toshiyuki Shiga, the chairman of the Japan Automobile Manufacturers Association, said the European crisis has made him less optimistic about the global auto market than a month ago.

‘First Out’

On May 10, Peter Sorrentino, who helps manage $12.8 billion at Huntington Asset Advisors in Cincinnati, said palladium may fall to as low as $430 by September. The metal touched $406 today.

“People should make sure they’re the first out of the exit and not the last,” Sorrentino said.

Prices gained for 12 straight months through April. The introduction of an exchange-traded fund backed by the metal in January boosted demand, Selkin of National Securities said. An ETF for platinum was also launched in New York this year.

“There’s very high speculative interest” in the metals, said Walter de Wet, an analyst at Standard Bank Plc in London. “With risk as high as it has been, we expect to see some liquidation.”

–With assistance from Makiko Kitamura in Tokyo. Editors: Patrick McKiernan, Steve Stroth

To contact the reporters on this story: Millie Munshi in New York at mmunshi@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.