MUMBAI (Commodity Online): Platinum and palladium prices have witnessed a big surge in the recent past following the increased demand from auto sector in China and India.

But this surge has hit the auto makers in India in a big way. Due to increased competition in Indian market car makers in India have been witnessing a price war. At that time the steel prices soared and along with that platinum and palladium prices also shot up.

For car makers who have been reeling under successive jumps in steel prices, this will be a double whammy. Platinum and palladium are used in catalytic converters which reduce harmful emissions from automobiles.

Maruti Suzuki, General Motors India, Toyota Kirloskar Motors, Mahindra & Mahindra and other auto companies are keeping a close watch on the palladium and platinum prices.

Incidentally, most auto companies factored in the metal prices when they went for an increase in car prices on April 1, 2010 while implementing the Euro IV emission norms.

Catalytic converters will play a crucial role as India moves towards stricter emission norms. Car makers are aware that palladium and platinum prices are slowly inching upwards.

The prices of these metals have gone up by 35% during the last one year and the increase definitely impacts the cost of production.

Palladium has risen 35% since the start of this year and is approaching the peak of $590 an ounce that it had hit in March 2008. Similarly, the price of platinum, which had tumbled to as low as $700 per ounce on October 24, 2008, has crossed the $1700 per ounce mark.

The prices may shoot up further as automobile sales in India as well as China are surging ahead. With India becoming conscious about cutting down vehicle emissions, the demand for catalytic converters with palladium and platinum will increase further. It is likely that prices of catalytic converters, which may go up in coming months, will put pressure on the margins of auto companies.

Incidentally, the Indian auto industry continued its growth momentum of 2009 into April 2010 as well, with passenger car sales registering their highest growth in a decade.

The cost increase or decrease for platinum or palladium is a transparent legal mechanism and therefore there is no possibility for negotiations and it is directly passed on to OEMs from suppliers since suppliers can't do anything.