Platinum and palladium: Dieselâ€™s sad jubilee
Consumers are turning away from diesel-fuelled cars in Europe, curbing platinum demand and limiting upside. Julius Baer expects a sideways trend going forward and maintain a neutral view, writes Carsten Menke, Commodities Research Analyst.
With prices not too far from recent multi-months highs, sentiment in the platinum and palladium futures markets is surprisingly bullish. We believe this is in contrast to the fundamental backdrop, which has been deteriorating as of late. For platinum, catalysts used in diesel-fuelled cars are the biggest single source of demand, accounting for around 35 per cent of total demand. Europe is the world’s largest market for diesel-fuelled cars and according to data from the region’s five largest markets – Germany, France, Italy, Spain and the United Kingdom - the decline in market share accelerated in recent months.
As a result of the emission scandal and amid rising concerns about air pollution, falling re-sale values and looming bans from city centres, consumers appear to be turning away from diesel engines exactly 125 years after Rudolf Diesel filed his patent in February 1892. We believe the structural decline in diesel-market share will curb platinum autocatalyst demand growth over the coming years, keep the market in balance and limit upside to prices. We expect a sideways trend for platinum going forward and maintain a neutral view. At the same time, we keep our cautious view on palladium as we still expect a short-term correction in prices.
Palladium is mainly used in catalysts of gasoline-fuelled cars, which dominate globally. The surprisingly bullish sentiment does not reflect the looming slowdown in global car sales, driven by China. Last year, sales were up 16 per cent as consumers pulled forward purchases due to a looming increase in sales taxes this year. While also impacted by an earlier Chinese New Year, sales dropped by 10 per cent in January. Another soft reading for February would confirm the weaker demand backdrop and should trigger the expected correction.