Palladium was bid at $482 in Europe on Monday afternoon, just below last week's all-time high of $490.50. Platinum was bid at $493, shy of last week's high of $500 touched briefly in June 1997.

"People have been looking for alternatives to platinum and palladium since the beginning of autocatalysts in the 1970's, but there's nothing with the same effectiveness and lifespan," Mike Steel, director of market research at previous metals refiner Johnson Matthey said.

Platinum and palladium, along with platinum group metals rhodium and ruthenium are used in various combinations in the catalysts to clean the fumes that come out of car exhausts. In 1998, 4.9 million ounces of the western world's total 8.3 million ounces supply of palladium were used to make autocatalyst, according to figures from Johnson Matthey.

Autocatalysts used 1.75 million ounces of the western world's supply of 5.6 million ounces of platinum, according to the same figures. In January 1997, the palladium price was around $120 and platinum $370, but the first in series of bureaucratic disruptions caused delays to Russian exports of the metals. Since then the official hiccups have continued, leaving prices high and supplies tight because Russia supplies around 70 per cent of the world's palladium and around 20 per cent of its platinum.

Availability a problem
"The biggest problem for car manufacturers is not so much cost as availability, because in terms of units per car the PGMS cost is small," Kamal Naqvi, analyst at Maquarie Bank in London said. "The autocatalyst makers need a guaranteed and continuous supply, even if the metals were $200 cheaper they'd still be looking for a substitute," Merlin Marr-Johnson, analyst at HSBC said.

A spokesman for Ford Motor Company said that the company was proactive in research on alternative materials and methods of production to meet present and future emissions targets, but also had stocks of palladium."The time scales of our production and development are such that short-term cyclical changes in cost or supply of palladium has no dramatic effect on either our production processes or our customers," he said.

Increase in demand
Platinum and palladium prices are also likely to draw more support from increasing use of fuel cells, which convert chemical energy directly into electricity using platinum group metals in the future. "Fuel cells are meant, eventually, to be able to power everything from cellular phones to automobiles and homes," Naqvi said.

Shares in fuel cell-related companies, including Johnson Matthey, jumped last week after Motorola Inc and Ford made positive comments on the technology and Microsoft chairman Bill Gates seemed to endorse it by buying 5 per cent of a utility holding company with a fuel cell unit.

-- REUTERS