Platinum price sinks to post-GFC low on VW
London (Oct 2) Platinum prices sank below $US900 an ounce on Thursday for the first time since the recession, as pressure from the Volkswagen AG emissions scandal hammered a precious metal already wounded by high supply and lackluster demand.
Having fallen steadily since July last year, prices are now down more than 50 per cent from an all-time high of $US1,912.20 in mid-2011. The metal is now trading just $US200 above its cheaper rival, palladium. Both metals are used in vehicles to reduce engine emissions as well as being turned into jewelry.
In recent weeks, platinum's role in engines has put the metal in a harsh spotlight after auto maker Volkswagen AG admitted last month to using test-evading software on diesel cars. Platinum is most commonly used in autocatalysts for diesel engines.
Palladium is benefiting from the fallout, rising 2.7 per cent on Friday on strong US auto sales data and investors betting that the gasoline engine cars that it is mainly used in will pick up sales from diesel fueled vehicles.
Spot platinum was exchanging hands at $US894.37 a troy ounce, down 0.6 per cent, in morning European trade, a near seven-year low.
"Given what is happening now with Volkswagen, obviously the sentiment toward [platinum] is hurt," said Koen Straetmans, a senior multiasset strategist at NN Investment Partners, which has EUR184 billion ($US206 billion) in assets under management.
The original revelations on September 18 that Volkswagen fitted 11 million of its diesel cars with so-called "defeat device" technology to bypass strict US auto-pollution regulations has seen platinum shed almost 10 per cent of its value.
The scandal has caused concern that the "diesel car market is destined for extinction," particularly in Europe, where its dominant market share was already under pressure, said Matthew Turner, a precious metals analyst at Macquarie.
According to Macquarie data, the percentage of diesel cars in Europe fell to 52.7 per cent in 2014 from 55.2 per cent in 2011. The bank forecast a decline to 51.7 per cent this year and 47 per cent by 2020, even before the Volkswagen scandal. Macquarie now sees the European diesel car market declining a further 5 percentage points to 42 per cent by 2020 as a result of the scandal.
The emissions row comes at a time when the supply and demand picture for platinum is already bearish. Analysts blame oversupply from major producer South Africa, patchy auto sales growth and slowing consumption for jewelry, especially in China.
The World Platinum Investment Council's most recent quarterly report showed that refined production from South Africa increased to 1.08 million ounces in the second quarter from 890,000 ounces in the previous one, while platinum jewelry demand for the same period declined 11 per cent.
Now, the precious metal is expected to stay below $US900, at least, in the short-term.
"Prices should hover around here for some time, but we expect prices to go back up by the end of the year," said Mr Turner.
In the long-term, however, some investors say they are bullish on the metal's prospects because further emissions regulations will likely mean that both platinum group metals will see greater demand.
"The news-flow around Volkswagen and others could weigh a bit on the price, but in the long-term the prospects for me is rather positive," said Stephan Mueller, head of product management and development at GAM Investment Management Ltd., which has 124.2 billion Swiss francs ($US126.7 billion) in assets under management.
Palladium is likely to continue to benefiting from platinum's troubles. On Friday, spot palladium was trading up 2.7 per cent at $US691.87, a three-month high.
"We think that palladium could [keep benefiting] from the scandal [and] we think there could be a further extent of substitution of demand within Europe," said Simona Gambarini, a precious metals analyst at Capital Economics.