UPDATE 2-U.S. auto recovery cushions Johnson Matthey profit drop
* Profit drops 9 percent after "challenging year"
* Sees "steady progress" in year ahead
* Shares climb hit all-time high
LONDON, June 6 (Reuters) - A recovering U.S. auto market cushioned catalyst maker Johnson Matthey's drop in annual profit, sending its shares to an all-time high as it forecast steady progress due to tougher rules on vehicle emissions.
Johnson Matthey, the world's largest maker of catalysts that control vehicle emissions, was badly hit by the impact of weaker metals prices on its division that refines, markets and distributes platinum - used in catalytic converters - and other precious metals.
But that was offset by better-than-expected progress in the division that makes catalysts for cars, trucks and the chemicals industry.
U.S. auto sales have seen a recovery as consumer confidence improves, and sales in May were boosted by construction workers and oil drillers snapping up pickup trucks to meet demand for their services.
Johnson Matthey posted a 9 percent drop in underlying pretax profit to just over 389 million pounds ($599 million) for the year to the end of March. The fall was smaller than analysts had forecast.
The company had warned of a tough year for its precious metals unit - normally the largest contributor to its bottom line - and investors had fretted over the impact of changes to a distribution deal with Anglo American Platinum, the world's largest platinum producer.
On Thursday, Johnson Matthey forecast profit growth, helped by chemicals processing, the impact of bolt-on acquisitions and recovering prices.
"We'll be growing. We should do better in both the first and the second half than last year. It is going to be modest growth, but growth nonetheless," Finance Director Robert MacLeod said.
Johnson Matthey stock was up 6.6 percent at 2,756 pence by 1220 GMT, off an earlier high of 2,817p but outperforming a virtually flat FTSE 100 index.
"The outlook statement has helped sentiment considerably. Steady progress in the current year is probably better than most people had expected," said analyst Charles Pick at brokerage Numis.
Underlying operating profit at the group's environmental technologies division, which makes catalysts for cars and trucks, climbed 7 percent - despite weaker sales of catalysts for cars in Europe where the outlook remains uncertain.
Even with lacklustre consumer demand there, Johnson Matthey expects to benefit from tighter emissions legislation in Europe from January. New rules are coming into force that will require improved catalysts for trucks and buses, resulting in a three to four times increase in catalyst sales value per vehicle.
"We feel good that we will get growth in Europe - for our business - because of the structural drivers," MacLeod said.
China and India are also expected to adopt similar emissions rules.
As expected, the precious metals products division was hit by low platinum and palladium prices and smaller volumes feeding through to its distribution business due to strikes across the South African mining industry last year.
That unit reported a 27 percent drop in underlying operating profit, although the group said it was seeing improvement.
Johnson Matthey paid a full-year dividend of 57 pence.