Norbert Ruecker, Head of Macro & Commodity Research Julius Baer
The diesel saga continues its next chapter. The German Federal Administrative Court has paved the way for communities to ban diesel cars from city centres as an option to curb air pollution. The decision causes ripples in the auto nation and marks another climax in the broader diesel scandal. The government has long promised its citizens to cut pollution but at the same time has been responsible for lax emission testing and continues to subsidies diesel fuels. The car makers exploited the regulatory framework and perfected the engine software to optimise diesel fuel efficiency at the expense of air pollution. Meanwhile consumers continuously showed their environmental consciousness at the polls but less so at the car dealership. German cities could opt for the diesel ban to curb air pollution, following the court-indicted grace period until September, but other measures such as pollution stickers are also feasible. Communities, the government and car makers are likely to seek common ground. The diesel share in car sales should decline further. Although the diesel cars on sale today are not affected by driving bans, consumers could continue to shun the technology. Meanwhile car makers are likely to favour gasoline and mild hybrid technology over diesel going forward which provides fuel efficiency and low pollution at competitive costs. Given the importance of the German market the court decision but also the car makers’ reaction will shape the broader European car market. Platinum will continue to face head-winds, but we believe that the implications of diesel’s market share loss on catalyst use are largely priced in. The court decision as well as hawkish comments from the US Federal Re-serve chair resulting in a stronger US dollar likely explain yesterday’s softness in precious metals.
The German court decision on diesel bans adds to diesel’s demise. However, we believe that the diesel headwinds are largely reflected in platinum prices and stick to our neutral view. Given our outlook for a slowdown in global car sales and today’s excessively bullish sentiment, we maintain a bearish view on palladium.