Volkswagen crashes platinum price

Volkswagen crashes platinum priceOn Tuesday, platinum futures in New York fell to a more than six-and-a-half year low as investors spooked by the fallout from a cheating scandal at the world's largest automaker continue to abandon the underperforming metal.

In afternoon trade on the Nymex in New York platinum for delivery in October dropped more than $35 or nearly 4% to $935.20 an ounce, levels last seen at the end of 2008. Compared to this time last year the metal is down 29.7%.

Platinum's primary use is in catalytic converters to reduce emissions – specifically for diesel vehicles – and Europe's car manufacturers are the top consumers of the metal where diesel makes up 50% of the market.

Volkswagen on Tuesday said 11 million of its cars had been equipped with the software designed to fool emissions testing. Stock in the German company dropped sharply again on Tuesday, but the damage done to the diesel sector and automakers in general could spread far wider.

Diesel vehicle sales have already come under pressure in Europe where cities like London and Paris have restricted access to diesel vehicles. While diesel engines emit less carbon dioxide than gasoline cars, it spews out other pollutants such as nitrogen oxide. Volkswagen cars on the road produced up to 40 times the standard for nitrogen oxide emissions.

For Volkswagen to correct the problem would require using more not less platinum in its engines but for now investors are definitely regarding Volkswagen's troubles as a big negative for platinum miners.

Sister metal palladium finds more application in gasoline engines and is therefore more exposed to the Chinese and US markets and should therefore in the longer term benefit from a move away from diesel.

Nymex palladium contracts for December delivery exchanged hands for $611.40, down 0.8% on Tuesday. In August the metal plunged to $532 an ounce, but quickly recovered. The price of palladium reached 13-year highs above $900 an ounce in September 2014.