With the auto industry recovering from its brutal lows early this year, Citigroup Global Markets analysts Alan Heap and Alex Tonks have dug into the implications for commodities.
According to their research, the most levered commodities to the auto sector are platinum and aluminum, followed by steel and zinc. Autos make up 60% of platinum consumption and 35% of aluminum consumption, they wrote.
However, aluminum (rather than platinum) is expected to be the bigger winner as the sector recovers, because it is more levered to the United States where a strong rebound in production is expected. A big chunk of platinum demand (30%) is tied to the European auto sector, where the outlook is "less buoyant."
In China, production and sales are undergoing a dramatic rebound, and the analysts noted that it is on-track to become the world's largest auto producer this year.
Mr. Heap and Mr. Tonks also wrote that government incentive programs for auto purchases have created risks for the metals. They expressed concern that these programs have created a "pull forward" effect that will dampen future sales, particularly in Europe. Also, the "cash for clunkers" program should generate increased scrap metal supply, though they believe it will be modest.