By Eric Onstad LONDON, June 5 (Reuter) - Platinum and palladium market-makers held talks on Thursday on chaos in their market where acute shortages of the rare white metals have driven prices dramatically higher.
They met against a background of what some dealers said was now a possibility of default on delivery of palladium.
"The meeting is an informal gathering, not under the auspices of the London Platinum Association," one source said.
But dealers said it was unclear what action could be taken to cool the market in palladium, used in electronics, chemicals, dentistry and auto catalystic coverters, and also in platinum.
Dealer stopped quoting forward rates on Thursday after the cost of borrowing palladium surged to around 300 percent for one-month metal on Wednesday night. Lending simply disappeared in a market so tight for available metal.
"Now it is purely a spot market," one dealer said.
Dealers also noted that gold lease rates had almost doubled overnight since a surge of borrowing came into that market.
Some dealers said this was done on behalf on a New York-based house which had had problems in palladium and was defensively covering forward gold positions.
Palladium fixed at $235.00 per ounce on Thursday morning, the highest official setting since the fix began in 1989 and the strongest spot price since 1980. The fix was down in the afternoon at $210.
The largest palladium supplier, Russia, has been out of the market since last December and analysts say a major U.S. hedge fund has also been stockpiling the metal.
Traders say they believe that a stockpile of about 1.5 million ounces of palladium is held by US fund, Tiger Management.
But sources close to the fund said Tiger Management's palladium position was a long term holding and the fund had not begun liquidating its physical stockpile.
Despite the market turbulence, deliveries against the New York June palladium futures contract, due to expire on June 25, were proceeding normally, exchange officials there said.
Platinum and palladium users had expected Russian supplies would have resumed by now, and have been borrowing the metal to cover their needs - but world inventories have been drawn down in the absence of Russia, the biggest supplier, from the market, traders said.
Russian officials told Japanese traders on Wednesday that Russian platinum and palladium exports would resume on June 20, but they also said the export licences had still not yet been granted by the Russian Ministry of Foreign Economic Relations.
Russia supplies about 60 percent of the world's palladium and about 20 percent of its platinum, but fiscal and administrative problems and a possible change of marketing strategy led to a suspension of exports last December.
20:44 06-05-97
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