Platinum prices hit multi-year low on VW scandal

September 23, 2015

Sydney-Australia (Sept 23)  Platinum prices hit a multi-year low for a second day running on the London spot market on Wednesday, as the Volkswagen AG emissions scandal fuelled concerns over European demand for diesel cars.

The precious metal is used to make autocatalytic converters in diesel engine cars and the scandal has led investors to rush to jettison some of their holdings.

The decline came amid stock market weakness and an already bearish picture for the metal due to slowing consumption in China and overproduction in South Africa. Analysts said the negative investor sentiment could likely drive prices below $US900.

Spot platinum was trading up 0.5 per cent at $US938.32 a troy ounce in morning European trade, recovering slightly after falling to a near seven-year low early in the session at $US929.08 an ounce.

Prices nose-dived on Tuesday after the French government and British transport officials demanded a European probe into car makers and diesel emissions, following accusations that Volkswagen cheated in US emissions tests.

"The fact that Volkswagen have done this little trick means ... [there is speculation] that people are going to start saying 'Actually, we shouldn't have diesel cars, let's head toward petrol or electric'," said David Govett, head of precious metals trading at Marex Spectron.

Volkswagen's shares have lost almost a third of their value this week.

Europe is the biggest diesel car market in the world, with automobile demand accounting for roughly 30 per cent of platinum use. Investors' fear other car manufacturers could be implicated in the scandal, indicating a widespread pattern of industry behaviour.

The European auto industry has pushed back against claims that emissions-cheating practices are widespread in the region.

"There is no evidence that this is an industrywide issue," the Association of European Automobile Manufacturers said in a statement.

There is also concern that the repercussions could speed up the demise of diesel cars in Europe, where they already face criticism due to pollution concerns.

Some in the industry suggest Volkswagen's alleged actions could be symptomatic of the difficulty in complying with Europe's stringent new emissions standards, known as Euro 6 regulation.

"It's a lot easier for gasoline cars to comply to the new standards than diesel cars," said Simona Gambarini, a precious metals analyst at Capital Economics. "It's likely that diesel cars will be a lot more expensive because they require a lot more PGMs [platinum group metals] and sophisticated technology to make them comply with the new regulation and that could be the real game-changer [for consumers]."

Demand from auto businesses has been one of the few bright spots recently as platinum use in jewelry has struggled on the back of flagging Chinese sales.

"If consumers lose confidence in diesel cars, this will have a substantial impact on future platinum demand," Georgette Boele, a strategist at ABN Amro, said in a note.

Not all market participants are convinced that platinum prices are doomed.

"Volkswagen's diesel disaster hit the platinum market [on Tuesday] but the market reaction was most likely overdone," said Carsten Menke, a commodities research analyst at Julius Baer, in a note. "Our longer-term view remains bullish, not least due to persistent supply constraints."

Palladium, meanwhile, was benefiting from the Volkswagen news. The metal is used more predominantly in the autocatalysts of cars with gasoline engines, which some analysts said could see a spike in sales as a result of a damaged diesel brand.

According to Ms Gambarini, the difference between palladium and platinum prices is going to become narrower.

Spot palladium was trading up 3 per cent at $US624.20 an ounce.

Among the other precious metals, spot gold was up 0.2 per cent at $US1,126 an ounce and spot silver was up 0.6 per cent at $US14.817 an ounce.


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