Winterkorn of VW resigning: a threat to Platinum?

By Bodo Albrecht
Wednesday September 23, 2015 12:34

Martin Winterkorn’s resignation today marks the low point in Volkswagen’s scandalous handling of emission regulations in the U.S.

Not only is it a shameful event in the history of a company that was just about to become the largest auto maker in the world, but Indirectly, there is fear that repercussions may include additional pressure on platinum prices, the metal used particularly in car catalysts for diesel engines.

Analysts have noted that “Dieselgate” has caused platinum prices to fall to new multi-year lows around $930 an ounce; but is this just a short-term, knee-jerk reaction?

Platinum, together with rhodium, are needed to meet environmental regulations geared at reducing the specific downsides of diesel engines: particulars like soot and nitrogen oxides. Today, this sector of the automotive industry still consumes around 45% of the world’s platinum. What are the odds, then, of platinum suffering from this event, long term?

The short answer is: not likely: platinum will, in all likelihood, be used in larger amounts per vehicle from now on to restore the technology’s reputation. But, let’s look at the individual aspects at play:

Europe, which has less stringent environmental rules for diesel engines than California, is unlikely to even be affected by the issue. Passenger cars equipped with diesel engines have enjoyed large and solid market shares for decades, chiefly because diesel is much cheaper there relative to gasoline, adding savings to the lower consumption.

However, diesel engines in Europe have also been on a decline in recent years while hybrids and boosted gasoline engines with a small displacement are gaining. These general trends are very likely to continue. Nevertheless, the diesel market is very significant to European automakers, too significant to allow the issue at hand to hurt it.

VW seems committed to face the public heat as evidenced by Martin Winterkorn’s sacrificial resignation. Provided the company continues to manage the crisis smartly the fallout beyond the immediate outrage should be manageable. Along with Winterkorn’s resignation, the company has said that it will set aside $7.3 billion to help cover the costs of litigation and penalties.

Is platinum off to a turbulent future? Short term the ripples of current events will surely be felt in the market as some investors panic, or lose confidence.

In the long run the odds are, however, that things will go back to normal as solutions emerge.

Also while platinum prices may see some weakness due to shifting investor sentiment, other Platinum Group Metals may benefit as a result.

According to Analysts at ABN Amro said in a note Monday they see the potential for palladium, which has risen more than 6% Wednesday, as expectations rise that consumers will buy more gasoline vehicles.

Bodo Albrecht,