Platinum price struggles as the VW scandal causes panic
London (Sept 26) It’s been a strange week for precious metals, with gold an oasis of relative calm during the recent equity bloodbath but it’s not been so tranquil for near neighbour platinum.
The price of the white metal hit a new six and half low per ounce this week as investors took fright at the rapid unravelling of car maker Volkswagen.
VW stunned the world with the revelation that it tampered with US pollution test figures for its diesel cars and that some 11mln vehicles globally are potentially affected.
Platinum is used as an exhaust filter in diesel cars and the news has had a knock-down effect on the metal.
Some speculated that VW’s scandal coupled with tougher regulations may end a decades-long preference for diesel cars in Europe
"Volkswagen is spilling over into industrial markets and that has sent platinum to a six-year low," says head of commodities strategy at Saxo Bank, Ole Hansen.
"The catalytic converters that go into diesel engines are made from platinum and it accounts for almost half the global demand for the industrial metal,” he added.
But not everyone was convinced.
David Govett at Marex Spectron, said: “I have to say, I suspect that this is slightly premature as banning diesel cars on a global basis would require global co-operation, which is pretty much unheard of in this day and age.
“However,” he concedes, “a recovery seems to be far off.”
Others, including broker Investec, suggested there could actually be benefits to the scandal.
“It is still early days in the scandal, and could ultimately help demand if carmakers ramp up efforts to curb emissions.”
It said the scandal may increase the focus on reducing emissions, forcing companies to apply further catalytic converters in cars in the future.
Platinum’s loss, however, has been palladium’s gain.
The metal is used as a catalyst to reduce emissions from petrol-fuelled cars and a worldwide shift away from diesel could mean a hike in demand for gas guzzlers.
“Talks about the potential switch from diesel to gasoline propped up palladium,” Hansen at Saxo Bank said.
One thing is certain, the saga looks to continue into next week.
Govett at Marex Spectron said: “The PGMs continue to be buffeted by automobile news, with BMW dragged into the story as well. I suspect there is a lot more to come and as such, platinum and palladium will be moved around as it develops.”
Next week will be key for the prices of both metals, with catalytic converter maker Johnson Matthey reporting interim results.
While the company has been quiet so far, comments made in its half year results will be scrutinised by investors looking for a measure of the effect of the scandal.
This week, VW’s shares have lost more than a third in value, while others including BMW also suffered losses.
Meanwhile, platinum lost around 2.5% for the week to US$946 with palladium gaining more than US$50 to US$665.
Gold on the other hand, gained US$11, or around 1% to US$1,144 while silver was almost dead flat at US$15.11.