Platinum: Lasting diesel headwinds
Carsten Menke, Commodities Research Analyst, Julius Baer
Yesterday’s debate about the future of the diesel car in Germany produced more headlines than results. We do not believe that the agreed solution will fix the problem of too high nitrogen oxide emissions. The consumers’ concerns about lower resale values and potential driving bans will likely persist. Despite the agreement, driving bans have not been ruled out by the German government. The share of diesel cars sold in Germany remained close to 40 per cent in July, which is near multi-year lows and mirrors a general loss of market share across Europe. Headwinds to platinum demand from autocatalysts used in diesel-fuelled cars should thus persist. That said, a lot of bad news appears to be priced in and downside should be limited with futures market sentiment on depressed levels.
Meanwhile, palladium prices have moved back towards recent highs, benefitting from prevailing positive sentiment in the futures market and shrugging off another weak reading of US car sales in July. Chinese car sales will only be reported later this month but are unlikely to show major improvements given the overhang from higher sales taxes. While sales rebounded in June, this should only be temporary as last year’s 20 per cent growth into year-end is unlikely to be reached, leaving ample room for disappointment and potential for profit taking. We see prices trading well above fundamentally justified levels.
Yesterday’s debate about the future of the diesel car in Germany produced more headlines than results. Platinum demand should remain under pressure from a falling share of diesel cars in Europe. With a lot of bad news priced in, downside should however be limited.