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US auto woes led to platinum parity with gold

The collapse of negotiations between the US Congress and representatives of the US’s three largest automotive manufacturers with a view to a bailout package has led to platinum trading at a discount to gold for the first time in fifteen years, precious metals analysts GFMS said.

Both platinum and gold were hovering between US$830 and US$850 an ounce by mid-December.

The passing of the bill would have been good news for platinum producers, possibly pushing up the platinum price along with investor confidence in the precious metal.

Automotive industry demand for platinum, which is used in catalytic converters, accounts for 50% of total demand.

Until late on December 11 it looked as if the Bill might just scrape through, but it failed when Senators notionally representing United Auto Workers (UAW) leaders reportedly refused to accept a 2009 deadline for UAW members to accept reduced wages that would be in line with non-unionised workers at import-brand factories.

General Motors, Ford and Chrysler currently have an historic wage-reduction accord in place with the UAW which lasts until 2011, and the union has sought to delay the wage cuts until then.

"All is not lost, however. Legislators are arguing that laws have been in place since the Great Depression that allow the Federal Reserve to make emergency loans to virtually any important entity that has run out of options for obtaining credit, and so it is possible that the Bush Administration could legally provide bridging finance," said Rhona O’Connell, managing director, GFMS Analytics.

In her market commentary published in GFMS’s quarterly newsletter, O’Connell said the bill would have provided short-term funding of approximately US$15 billion with the possibility of longer-term financing, while the companies had originally been looking for a combined total of loans/credit lines of US$34 billion.

As things stand now, Chrysler and General Motors are looking for a combined US$11 billion to see them through the recession.

Ford has said that it does not need immediate help, but that it might need a US$9 billion line of credit if the position should weaken further, while the chief financial officer of Chrysler has said that it is nearing its minimal viable cash position and will run into problems with respect to paying bills next year.

Bills to suppliers amount to US$7 billion every 45 days.

General Motors has also said it may not have enough operating cash by year-end.

The US president has said in response to questions that he has signalled that the White House will consider releasing TARP (Troubled Asset Relief Program) funds to help the industry, but as of mid-December said the White House was "not quite ready to announce that yet".

The US Treasury is apparently in discussion with all of the three largest automakers, while the leader of the UAW has said that the union is in discussion with the Bush Administration, but that there has been no indication about any timing.

"The markets are now therefore extremely nervous once more, and it remains to be seen if and how the situation can be, if not resolved, then at least given some breathing space," said O’Connell.

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