[miningmx.com] – IT’S difficult to assess how the Volkswagen AG scandal will affect the platinum price, but for now the view is less hysterical than you might expect in the currently volatile commodity markets.
Roughly 44% of platinum demand comes from its use in curbing harmful gases from automobiles, many of them diesel. A switch to gasoline engines is not necessarily bad news, however, because they require more palladium in their manufacture than platinum.
“Each 1% decline in diesel penetration in Europe equates to a 17,000 ounce decline in platinum demand and a 20,000 oz increase in palladium,” said Andrew Bryne, an analyst for Barclays Capital.
“Our base case assumption of a [diesel] penetration decline to 43.9% in 2022 would therefore see auto platinum demand decline by 149,000 oz. A move to 30% would see a total of 440,000 oz of demand eroded,” he said, adding that there would be the positive impact on palladium demand.
There’s also the possibility auto-manufacturers will replace some converters which may lead to an increase in platinum demand.
“I just don’t see it being that big a deal over the longer term,’ Patrick Magilligan, head of market research at platinum recycle company A-1, told Bloomberg News in September.
There may also be a tightening in the testing conditions for emissions from automobiles, an outcome that Goldman Sachs views as positive for platinum demand as the initial reaction from OEMs [original equipment manufacturers] towards tighter regulations has mainly been to an increase the loadings of PGMs in order to meet them.
“Another key point to note is that if the controversy stays in the US it would be a negative for diesel, but not a huge impact as US is primarily a gasoline (more palladium) market,’ it added.
It believed Anglo American Platinum, Lonmin and Impala Platinum were the South African platinum mining stocks most exposed to the scandal.
The bad news is that the Volkswagen scandal has probably added a further dose of poor sentiment towards the platinum group metal market and giving succour to speculators who are betting on weaker metal prices.
“The VW ‘dieselgate’ scandal just exacerbates the headwinds: weak Chinese jewellery, smaller enginers, slowing growth in vehicle sales and increasing scrap supply,” said Byrne.
World platinum supply is forecast to increase 9% to 7.9 million oz in 2015, according to latest data from the World Platinum Investment Council (WIPC) which said that the previously estimated annual deficit would also be higher.
Following collection of second quarter data, the WIPC now believes the previous deficit forecast of 190,000 ounces of platinum would increase to 445,000 oz by year-end which it attributed to a sharp increase in second and third quarter investment demand.
However, at 445,000 oz, the supply shortfall this year is nearly half of the supply shortfall registered in 2014 which was 785,000 oz. Platinum supply in 2014 was heavily affected by the five-and-a-half month strike in South Africa’s platinum industry.
