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Catalytic converter change makes price of platinum fall

The music industry might have to abandon "going platinum" to describe a best-selling record. The price of the precious metal plunged last week on word that the Japanese have invented a cheap way to eliminate its use in car pollution-control devices. Nissan Motor Co.'s disclosure that it has developed a platinum-free catalytic converter, the box-like device that transforms auto pollutants into harmless byproducts, sent platinum prices tumbling the daily limit of $25 a troy ounce Thursday on the New York Mercantile Exchange.

But the price recovered a bit during the session on unconfirmed rumors that the converter would not pass either U.S. Environmental Protection Agency or European emission control standards, and therefore would be used only in Japan. Further, it was rumored that the converter would be placed only in Japanese mini-cars.

"So the actual use for this catalytic converter, should it ever get to commercial use, is very limited," said Bob Ascher, a first vice president at Merrill Lynch Futures Inc.

The contract for platinum delivery in July settled Friday at $371 a troy ounce.

Still, the move was significant and underscores that platinum trades "more and more like an industrial commodity and no longer like a precious metal," which is swayed more by emotion than economic fundamentals, Ascher said.

Nissan, which set no timetable for commercial introduction of the new device but said it might be available by 1994, estimated that about 40 percent of the platinum consumed in the world is used by carmakers.

In conjunction with certain other metals, platinum acts as a catalyst in chemical reactions that convert harmful exhaust pollutants into carbon dioxide and water. The converters have been required since 1975 on all cars sold in the United States.

A 1988 report issued by London-based Johnson Matthey PLC, the world's largest platinum refiner, predicted new pollution standards in Europe would contribute to a steady increase in global platinum demand through 1994.

Traders still shudder at the memory of a plunge in prices in December 1988 when Ford Motor Co. first announced it was testing a platinum-free catalytic converter that meets stringent exhaust emission requirements.

The news sent the price of the metal plunging nearly $100 an ounce.

In response to press inquiries Thursday about the Nissan announcement, Ford said in a statement it has made limited use of platinum-free converters in nine car models since 1988 and plans to expand their use.

Ford said it also has installed platinum-free converters in more than 600,000 trucks and has sought patents for technology that would use only palladium as a catalyst.

It was unclear how or whether Nissan's platinum-free converter differs from Ford's. H.S. Gandhi, manager of Ford's Chemical Engineering Department, said the department hasn't been able to determine whether the move away from platinum has saved money.

The market for platinum is extremely thin, and any news tends to have a dramatic effect. "It's all exaggerated by a lack of liquidity and misinformation," Ascher said.

Still, Thursday's tumble was one of the worst since the Ford announcement. But Henry Terranova, a vice president with Refco Inc., a commodity futures trading company in New York, noted that platinum has been declining in price for nearly a year.

Because platinum is used primarily in auto equipment and as jewelry, "when you have the situation of recession, demand dries up and prices retreat," he said. Before the Iraqi invasion of Kuwait last August, platinum was trading just under $500 a troy ounce.

Nissan's new catalytic converter relies on palladium as an agent to extract poisonous material from exhaust gas, which contributed to a rise in the price of palladium.

"Based on the current (metals) prices, production cost could be lowered to about one-third" current levels, Nissan said in a statement from its Tokyo headquarters.