Platinum's premium over palladium fell to its lowest in 13 years Thursday, amid uncertainty surrounding the future of diesel technology and concerns the Volkswagen emissions scandal could push car buyers towards gasoline cars.
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Platinum is primarily used in diesel-fueled engines, while palladium is used in gasoline engines.
Spot prices for platinum on the London Bullion Market Association traded at a premium to palladium of $247/oz at around 1310 GMT Thursday, the lowest level since 2002.
"[PGMs] are symbiotically linked to vehicle emission control, and platinum to diesel in particular," said analysts at Macquarie in a note Thursday.
"PGM demand will be impacted if PGM is required or not required in new technologies," said the note.
The LBMA platinum price settled at $908/oz Wednesday, while palladium settled at $661/oz.
"The price floor for platinum is difficult to estimate as the Volkswagen scandal extends beyond automobile recalls," said one broker. "Financing arrangements will fall apart, car dealerships may go out of business and diesel technology could forever be tarnished."
Platinum prices have dropped $113/oz since August, with PGMs under pressure following poor emerging market industrial growth. Spot price stood at $913.00/oz at 1610 GMT Thursday, falling from $1,026/oz under two months ago.
Following the scandal, comprehensive European tests of automobile technology are expected by 2017, but public pressure could accelerate the process.
"The damage to diesel's market share could come quicker," said Macquarie. "Such a move would benefit palladium, explaining its recent gains."
Palladium has rallied since hitting a $539/oz low in late August, after a year marred by poor automobile sales and surplus production. The precious metal traded at $673.90/oz at 1610 GMT Thursday.
"Shrinking global car sales and production [is] something that has hit palladium hard, given its huge reliance on auto-catalyst demand," said Macquarie.
Three-quarters of palladium demand comes from catalytic technologies.
On the supply side, a INTL FCStone analyst note said that North American Palladium cut their palladium production forecast by 25,000-35,000 oz for 2015.
However, South Africa, a major producer of PGMs, is expected to maintain production output for the foreseeable future.
"It doesn't look as if output will fall in the coming years," said Macquarie. "The very weak [South African] rand has also maintained miners' income at a survivable level, once again postponing any supply adjustment."