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Beverly Chandler

Emission scandal hits platinum market

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ETF Securities has written a note on the effect the Volkswagen emission scandal has had on the platinum market.

 Aneeka Gupta, Associate Research Analyst at ETF Securities, says: “The Volkswagen emission scandal revealed on 18 September caused a sharp divergence in sentiment resulting in platinum’s premium over palladium falling to its lowest level in 13 years. Despite an improvement in the demand outlook for platinum from jewellery and investment, negative sentiment for platinum continues to weigh on its price.”
 
The firm explains that market observers need an understanding of the intricacies of the emissions. Gupta writes: “The software defeat device used in Volkswagen’s diesel engines cheated on the results of NOx testing, violating the US clean air act. Versions of the Volkswagen’s diesel engines fitted with the Lean NOx trap (LNT) and urea based selective catalytic reduction (SCR) system emitted up to 35 and 20 times the EPAs required limit respectively. The global rollout of stringent regulations are emphasising NOx reduction in emissions from diesel engines, demanding higher amounts of ammonia and thus increasing the risk of ammonia slippage into the environment. In contrast to the gasoline engine, diesel engines while coping with hydrocarbons (HC) and carbon monoxide (CO) easily, struggle with NOx. A key technological solution is a highly selective ammonia slip catalyst in the final stage of the after-treatment system.”
 
The firm writes that HC and CO are oxidised via a PGM based diesel oxidation catalyst while the particulate matter are captured by the catalyzed soot filter, leaving only NOx to be treated. “Recent models fitted with the SCR system require a top off of a urea solution on gases exiting the diesel oxidation catalyst. The software on Volkswagen cars sensed when the test mode was active and released urea into the emission gas to neutralize harmful nitrogen dioxide emissions.”
 
Despite having no role to play in the final stage of the after treatment of NOx emissions, platinum suffered the brunt of the scandal. Gupta writes: “It’s worth noting that a recall of cars by Volkswagen will also have no direct bearing on the demand for platinum, since the NOx after-treatment is not impacted by the PGM based oxidation catalyst used for HC and CO. Despite being known to derive 44 per cent of its use in autocatalysts for both diesel and gasoline cars, fears of a consumer shift in preference for gasoline vs diesel cars have weighed on the demand outlook for platinum. While the case for fuel efficiency remains strong for diesel engines it’s hard to determine how long Volkswagen’s deception will curtail demand. The trend of rising European auto sales is diverging from the downward trajectory of platinum prices.”
 
The firm concludes: “We believe platinum prices have been unduly impacted by the emissions scandal and weakness in platinum prices will continue in the short term as negative sentiment pervades fundamentals.”
 
However rising auto sales in US and Europe, the onset of the festival season in India and China and moderate speculative investment appetite against the backdrop of cuts in production bodes well for platinum’s long term demand outlook.

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