Hedge funds have never been this bearish on platinum price

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The price of platinum stayed above $900 an ounce on New York futures markets on Monday as it attempts to recover from levels last seen in January 2016 struck last week. Platinum is trading near a record discount of $400 an ounce against gold and its lacklustre performance compares to sister metal palladium 27% rally over the past year.

The bearish outlook for platinum is reflected on derivatives markets where managed money investors such as hedge funds have cut bullish bets to record lows. Large scale speculators now hold the biggest net short position – bets that the metal can be bought cheaper in future – since government started collecting the data in 2006.

The autocatalyst market represent more than 40% of platinum end user demand and while palladium mainly finds application in gasoline engines, platinum is the preferred emissions scrubber in diesel engines.

Diesel technology has been under relentless pressure since the September 2015 revelations that Volkswagen, the world’s number two vehicle manufacturer, had cheated on emissions testing. Europe’s car manufacturers where diesel made up around 50% of the market (but as a percentage of new sales has declined rapidly) are the top industrial consumers of platinum.

[The emissions cheating scandal] deeply affected “the emotions in society toward emissions and cleaner cars. Diesel cars are finished.”

On Monday, the European Union’s industrial-policy chief made some of the most negative comments yet on the future of diesel on the continent.

Bloomberg reports European Commissioner Elzbieta Bienkowska said the EU has had a “breakthrough moment” since the VW scandal:

This deeply affected “the emotions in society toward emissions and cleaner cars,” she said.

“Diesel cars are finished,” Bienkowska said in a May 24 interview in her ninth floor Brussels office. “I think in several years they will completely disappear. This is the technology of the past.”

News also emerged last week that Hamburg, Germany’s second-largest city, will restrict older diesel vehicles from certain urban areas starting as early as this week, marking the first driving ban in the world’s fourth largest automaker.

The European commission is launching an initiative to spur the development in Europe of batteries for electric cars, including through financing.

“We want to have the first batteries produced in Europe, but also the whole value chain,” Bienkowska said. “It’s the kind of a project that a single member state cannot afford.”

Europe is playing catchup with China as it tries to regain leadership in the auto industry with the move away from internal combustion engines. VW group plans to invest more than $24 billion in zero-emission vehicles by 2030 and wants to offer an electric version of each of its 300 models by 2030. Daimler and BMW is also pouring billions into its EV plans.

Auto catalyst

In a recent report, refiner Johnson Matthey said the platinum market is set for another surplus this year after recording oversupply of 110,000 ounces in 2017 while sister metal palladium is tipped to see another deficit.

Together Russia and South Africa control between 70% and 80% of the world’s supply of PGMs. Russia’s state stockpiling organization called Gokhran sits on an undisclosed amount of palladium built up during the Soviet era, which it releases onto the market from time to time (some say it’s already depleted).

The structure of supply has not altered in any substantial way since the 1970s when platinum and later palladium came to the fore as an important part of the world’s automobile industry.