Platinum steadies after 4-day rout, demand worries remain

Platinum slid to a fresh 6½-year low on Wednesday on fear about reduced demand from the automotive sector, where it is used in diesel catalysts to clean up exhaust emissions.

There’ll be a “substantial” drop in platinum usage if consumers buy fewer diesel cars, something that may turn buyers toward gasoline cars which use more palladium, ABN Amro Bank NV said.

On the other hand, palladium would benefit from the switch to gasoline engines and it looks like palladium investors liked the news. The average diesel vehicle contains 4 to 6 grams of platinum, A-1 Specialized Services & Supplies Inc. estimates. As a result, at least 11 million cars manufactured by the company are expected to be emitting anywhere between five to 35 times the amount of harmful chemicals into the atmosphere under regular conditions than they do in the laboratory.

Spot platinum was up 2.3 per cent at $US958 an ounce, after losing about 5 percent in the past four sessions.

According to the proposed class-action complaint – filed in San Diego federal court – the German automaker sold 2009-15 diesel Volkswagen and Audi cars rigged with software that turns on full pollution controls only when the vehicle is undergoing official emissions testing. Platinum fell 4% after the news, although recovered some of its loses yesterday.

It is still early days in the scandal, and could ultimately buoy platinum group metals demand if carmakers ramp up efforts to curb emissions.

“There are many possibilities about how this could play out”, Rannestad said, citing the chance that carmakers may redesign engines, which could increase PGM loadings in autocatalysts.

“I guess the platinum is reacting to the immediate impact on the USA market (lower diesel cars sales) and people anticipating that it may follow through in Europe, although it is hard to work out what may happen”, ICBC Standard Bank analyst Tom Kendall said. “The reason for platinum to be singled out (by investors) is because of its contribution to catalytic converters – especially in diesel engines”, added Saxo Bank analyst Ole Hansen.

“We suspect that as a result of these expectations, platinum prices have fallen more substantially than other precious metals this week”.

So, price might drop and platinum-palladium spread might widen in the short term, there could be reversal ahead.

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