By Sue Thomas
CAPE TOWN, Feb 18 (Reuters) - Palladium producers need to entice nervous users back to the metal, which still has a big role to play in the automobile industry despite recent price falls, the head of Anglo American Platinum said on Tuesday.
The value of palladium, a platinum by-product used to make autocatalysts in the auto industry and components in the electronic industry, crashed to $220 by December 2002 after reaching a peak of $1,094 in January 2001.
The high prices forced palladium users to seek substitute metals, and although electronics businesses are thought unlikely to switch from their substitute, nickel, Angloplat Executive Chairman Barry Davison said there was scope to tempt auto industry users to move back to palladium from platinum.
"Consumers can rely on a regular supply (of palladium), and there's lots of metal around at reasonable prices," he told a mining conference in Cape Town.
"This is a truly exceptional metal, and has some extraordinary qualities. It must have an ongoing considerable role to play in the automobile industry."
Platinum's fall followed inevitably from the rise, which was driven by a demand stampede and disruption in key supplies from top producer Russia, Davison said.
"Primary producers couldn't keep up with palladium demand. It was an untenable situation and something had to give, and it did. The phenomenal growth in palladium demand fell off the cliff," Davison said.
Industry users began seeking alternatives to the costly metal, demand slumped and the price collapsed. On Tuesday spot palladium was trading at $251 an ounce.
Refiner Johnson Matthey forecast palladium demand to plunge 28 percent to 4.9 million ounces in 2002 -- its lowest since 1994 -- as auto companies and electronic component manufacturers work off their inventories of the metal.
"Erratic supplies and extreme price volatility has undermined consumer and user confidence in the metal," Davison said. "Russia remains in a position to totally undermine the palladium price if it so wishes. Russia's influence in the palladium market remains."
Matthey forecast Russian supplies dropping 63 percent to 1.6 million ounces in 2002, helping to prevent the price of the metal falling further.
While deep consumer distrust had ensured that palladium was unlikely to regain its glory status, producers had to allay fears and convince users of the metal's uses, Davison said.
The electronics industry had substituted palladium with nickel during the slump and this trend was not likely to be reversed, Matthey has said.
But there was still scope for the auto industry, which had substituted palladium with platinum, Davison said. Earlier this year platinum surged to near 23-year highs on supply concerns.