Platinum prices set to fall due to VW scandal
﻿The Volkswagen scandal﻿ has meant that diesel propelled vehicles stand to loose market share, removing a source of platinum demand growth, resulting in prices falling. Given that diesel after-treatment systems tended to be platinum-intensive, this had raised the spectre that demand for the precious metal could decline. The price of platinum has fallen about 22% in the last months to close at $910/oz in New York on Friday. "There are various barriers for an accelerated adoption of battery electric vehicles (BEVs), suggesting that the overall share of electrified vehicles will still stand below 3% by 2018 globally,” the BofA Merrill Lynch researchers estimated. Also the auto industry is expected to require fewer lead-based batteries at the expense of lithium batteries in the long term.

TORONTO (miningweekly.com) – As a direct result of German automaker Volkswagen’s (VW’s) admission that it violated US emission regulations, diesel propelled vehicles stood to lose market share, removing a source of platinum demand growth, sending prices falling.

On 18 September, the US Environmental Protection Agency issued a ‘notice of violation’ to VW, after determining that the company had equipped vehicles with turbocharged direct injection diesel engines with software programming that enabled their nitrogen oxide emissions controls to engage only during laboratory emissions testing.

A new Bank of America (BofA) Merrill Lynch Global Research report had found that as many as 11-million vehicles globally could be affected by underlying issues.

Given that diesel after-treatment systems tended to be platinum-intensive, this had raised the spectre that demand for the precious metal could decline.

“While we agree that the VW issues have increased headwinds to the metal, it is worth remembering that diesel cars have only a 3% market share in the US, so a switch to more palladium-intensive gasoline vehicles may be negligible,” the report authors stated.

However, diesel engines were popular in Europe, accounting for more than half of new registrations in recent years, making a switch towards petrol likely to reduce platinum demand by about 200 000 oz, or 3%, of global demand over the next three years, according to the report.

This was compounded by diesel vehicles already facing challenges in the region even before the VW issues, reflected in the intentions from cities, including London and Paris, to ban diesel cars over their emissions.

PRODUCTION PAINS

South Africa-based equity research analyst Thomas Mengel recently noted that falling metal prices, together with weak demand from critical segments, including the auto industry, had led to the initial stages of restructuring in the mining industry. Producers had started cutting costs, deferring capital expenditure and refinancing balance sheets.

“All this suggests that the bottoming process has begun, although it will be long and drawn out and diesel's current issues certainly do not help. Supply discipline, one of our core themes across the mined commodities, will be necessary to bring about a sustained rally; in fact, further price weakness may be necessary to bring about these curtailments,” the analyst said.

However, if the scandal did indeed have a negative impact on demand for platinum, these cost cutting programmes might be accelerated and/or more projects might be deferred.

On the plus side, Mining Weekly Online recently reported that the attack on diesel vehicles and the Volkswagen emissions debacle were putting a favourable new spotlight on the zero-emission value of fuel cell electric vehicles that used considerable volumes of platinum.

This year alone had seen several global car manufacturers steadfastly advancing the introduction of hydrogen fuel cell cars that required close to 14 g of platinum a vehicle.

Still, the price of platinum had fallen about 22% in the last six months to close at $910/oz in New York on Friday.

While gasoline cars, whose after-treatment systems tended to be more palladium intensive, stood to gain from diesel's current issues, BofA Merrill Lynch reported that it had also fielded questions on whether electrified vehicles, such as hybrids, plug-in hybrids and battery electric vehicles (BEVs) could gain market share.

Vehicles with combustion engines would remain a staple for now, as analysts saw limited risk for a more significant and accelerated increase in the popularity of electrified cars, because formidable barriers existed, including vehicle costs, charge time, battery life uncertainty, vehicle model choices and availability, charging infrastructure and awareness and understanding of the technology.

While hybrids contained emission catalysts, BEVs were emission free and did not require pollution treatment. “Having said that, there are various barriers for an accelerated adoption of BEVs, suggesting that the overall share of electrified vehicles will still stand below 3% by 2018 globally,” the BofA Merrill Lynch researchers estimated.

Looking at lead, the auto industry was expected to require fewer lead-based batteries (used for starting, lighting and ignition in combustion engines) at the expense of lithium batteries (used for propulsion of BEVs) in the long term.