Platinum group metals were the hardest hit on generally weak precious metals markets Tuesday after a German court ruled that cities in Europe’s largest economy and world’s fourth largest automaker have the right to ban diesel cars.
The price of platinum were back in triple digit territory on New York futures markets on Wednesday falling 2% to a low of $983 an ounce. Palladium was also weaker at $1,033 an ounce as it continues to retreat from record highs of $1,138 an ounce hit in January.
“We’re witnessing the creeping death of diesel,” Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany told Bloomberg News.
The technology will still survive in some segments like trucks, but “if you’re a private car buyer, it’s very hard to pick diesel. The insecurity is growing.”
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. Today’s ruling affects more than 10 million vehicle owners in Germany and could have ripple effects across Europe.
Encouraged by government tax subsidies and loose regulations, the European auto industry invested heavily in diesel as a profitable stop-gap technology to meet tighter rules on carbon dioxide emissions. Standards will again tighten in 2021, which means carmakers risk fines as consumers desert diesel.
“This is a groundbreaking ruling, and one which we expect has set a strong precedent for similar action across Europe,” Arndt Ellinghorst, a London-based auto-industry analyst with Evercore ISI, said in a note to clients. The ruling is “damaging to already-battered diesel sentiment.”
The world’s top PGM miners were under pressure on Wednesday with Anglo American Platinum giving up 2.2% in value in New York while Impala Platinum fell 4% and Sibanye Stillwater declined 2.7%.
Europe’s car manufacturers where diesel makes up around 50% of the market (but as a percentage of new sales is declining rapidly) are the top industrial consumers of platinum. The autocatalyst market represent more than 40% of platinum end user demand.Palladium mainly finds application in gasoline engines and the sector is responsible for 70% of overall palladium demand.
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.
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.