By Alden Bentley
NEW YORK, March 27 (Reuters) - Car companies are fiddling with the ratios of precious metals used in auto antipollution systems after the price of palladium plunged this week, balking at paying sky-high prices for platinum when the two are almost interchangeable in many vehicles, industry sources said.
Platinum hit a 23-year high this month at $707 an ounce.
That is not to say Detroit's Big Three are revved up to race back and buy palladium after it dropped below $200 an ounce on Tuesday for the first time since December 1997.
General Motors , DaimlerChrysler and Ford Motor Co. have been burned by the market in recent years and are thought to have huge stockpiles to work off. Ford lost $1 billion in 2001 on palladium inventory price declines.
"We've certainly seen a bit more interest from car companies at these levels," said Gordon Bassett, general manager of U.S. precious metals for refining and chemical company Johnson Matthey.
"They have been looking at that over last few months anyway, just to see what kind opportunity there is to balance their usage a bit better. Rather than swing one way and swing the other way," Bassett said.
The three companies did not reply to requests for comment.
In a reversal of fortunes since hitting all-time highs two years ago, palladium, currently near $195 an ounce, is about $455 cheaper than Wednesday's platinum price around $650.
In January 2001, palladium hit its highest price ever at $1,095 an ounce as car makers fought to stockpile the metal in the face of tighter exhaust emissions rules and erratic exports from Russia, the main supplier. That was about $455 more costly than platinum's $644 an ounce, at the time a 13-year high.
"They can switch a lot quicker than people think," said a platinum expert at a New York trading firm. "People are trying to gauge how much they are willing to switch."
The auto sector is the main buyer of palladium. Platinum is also used extensively in jewelry.
Car makers in the past complained bitterly of unexplained disruptions in Russian palladium shipments.
The situation deteriorated so badly that General Motors once dubbed palladium "unobtainium" and then swiftly changed its name to "plentium".
Palladium is considered to be somewhat more efficient than platinum as a catalyst in gasoline engines, especially for cold start emissions. But only platinum can be used in diesel motors, which are an important part of Europe's car market.
Palladium has lost 50 percent of its value this year and is down 82 percent from its highs. Weak car sales bit into usage and auto makers loaded catalytic converters with metal they hoarded when palladium prices were rising.
David Littmann, chief economist at Comerica Bank in Detroit, said auto makers in Motor City had plenty of cash to deploy after recent years of record sales, and said auto affordability was at a 24-year high.
"Interest rates remain low, the incentives are intense and they will be selling the vehicles at a 16 million light vehicle annual rate or better," he said. "That's enough for the purchasing people to make small bets here."
Manufacturers have developed less palladium-intensive technologies and switched back to platinum, mostly in systems that used one or the other in combination with their sister metal, rhodium.
Through chemical reactions with combinations of palladium, platinum and/or rhodium, engine exhaust passed through catalytic converters is cleansed of harmful hydrocarbons, carbon monoxide and oxides of nitrogen.
Palladium supply is somewhat more dependable than it was in 2000, and less dependent on Russia. South Africa, which is the world's largest producer of platinum, cranked up palladium production during the crunch.
"Deliveries are still an issue. They are still trying to gain confidence in Norilsk," the platinum dealer said, referring to Norilsk Nickel, the giant Russian metals company which mines a lion's share of the world's palladium supply.
Dealers said that supply contracts with South African producers were not all being drawn against, leaving an excess to be sold in the market.
GM reduced its use of platinum group metals 45 percent from 1999 to 2001 and vowed to cut back another 17 percent by 2006.
Its engineers must keep future loadings at not more than 1.5 grams of platinum, 3.0 grams of palladium and 0.3 gram of rhodium per vehicle.