Platinum, Palladium Uptrend to Continue

NEW YORK (TheStreet) -- Platinum and palladium metal prices could continue to increase on supply constraints and on increasing auto sales in China and India.

Over the past three trading sessions, palladium and platinum for spot delivery on NYMEX gained 5.3% and 1.5%, respectively. Tracking the metals' performance, palladium ETF ETFS Physical Palladium Shares ETF (PALL) and platinum ETF ETFS Physical Platinum Shares ETF (PPLT) registered similar gains.

Among stocks, Stillwater Mining (SWC), North American Palladium (PAL) and Platinum Group Metals (PLG) gained 9.7%, 5.4% and 2.8%, respectively.

Palladium group metals (PGMs) production is set to decline because around 8,000 mineworkers at the South Africa-based Northam Platinum will go on strike starting Monday over wage increments. The company did not agree to National Union of Mineworkers' demand for a 15% increase in wages and other allowances. The company produced 321,745 ounces of PGMs in the year to end-June. Supply disruption at Northam will widen the PGM deficit, pushing up the prices.

Unlike other countries, car sales in India have been trending up and are hesitant to take a break despite price hikes. Car sales of Ford (F) grew 220% year-over-year in August, leading the pack of carmakers in India. Other leading car producers Maruti Suzuki, Tata Motors (TTM), Honda Motor (HMC), Toyota Motor (TM) and General Motors registered handsome growth rates of 32%, 45%, 39%, 26%, and 34%, respectively, in August. Several new models, easy financing and booming economy are the prime reasons for the continued outstanding performance of India car sales.

Meanwhile, China surpassed the Indian car market growth rate in August, as China's car sales surged around 56% year-over-year to 1.21 million units. This robust growth can be attributed to the government's incentives for small fuel-efficient cars.

U.S. auto sales declined around 21% year-over-year in August. The year-ago month was an exception since the government's "cash for clunkers" program supported sales numbers. Similarly, car buying in France, Italy and Spain dropped in August as government incentives were phased out.

Sluggish growth in Europe's auto sales will likely have more impact on platinum than on palladium as cars in Europe are mostly gasoline-based, which consume more platinum. However, cars in China and the U.S. - the world's top two car producing countries -- are mostly diesel-based, which use more palladium. Hence, robust U.S. and China manufacturing numbers for August which were released on Wednesday had a greater impact on palladium than platinum.

Karvy Global Services (www.karvyglobal.com), a subsidiary of the Karvy group (www.karvy.com), provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.