Slower EU diesel demand no reason to be bearish on platinum – Macquarie

Dec 17, 2014 - 12:26 PM GMT
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The death of diesel engines in European cars has been exaggerated, Macquarie said, as fears grow over the outlook for platinum.

Almost 954,000 new cars were registered in the EU in November and 11.6 million so far this year, figures from the European Automobile Manufacturers Association (ACEA) show.

While ACEA does not break this figure down into diesel- and petrol-driven cars, Macquarie said that 53.1 percent of total EU sales were made up of diesel engines in 2013, a figure it expects to fall in 2014 at 52.8 percent.

“For platinum demand this is bearish, but should be kept in context – a 2-percent point decline in diesel share only reduces platinum demand by about 50,000 ounces, and will be offset if overall car sales in Europe rise by more than four percent, which we expect. More profound changes could happen in future,” it added in a report.

Platinum is the primary element in autocatalysts for diesel engines – of the seven million ounces of platinum consumed every year, around 40 percent ends up here. Of that proportion, 20 percent goes into European cars, the biggest consumer of diesel engines in the world.

Although France is looking to “phase them out”- Prime Minister Manuel Valls has suggested that the country will “progressively undo” the dominance of diesel-powered vehicles in the market – total diesel car sales will rise 4.9 percent this year, the bank said.

Still, diesel’s popularity in Europe remains based on the financial incentives for owning a diesel engine.

“Neither of two of the reasons we gave earlier this year for diesel losing market share is played out – that the cost of diesel fuel was becoming more expensive compared with gasoline, and that the cost of diesel cars were becoming more expensive compared to gasoline cars,” Macquarie said.

Moves to taxing diesel more highly, both absolute and relative to gasoline, have stalled, it added, with diesel trading at a hefty discount to gasoline at the pump either side of 10 cents per litre.

Furthermore, diesel-powered cars have not become more expensive relative to gasoline cars despite the fact that traditionally they have always been sold at a higher premium than regular petrol engines.

“Diesel’s market share in European passenger cars has remained remarkably resilient in 2014. However the sharply lower oil price has reduced diesel cars’ financial advantage, and we think its market share decline will accelerate in 2015, though by no more than 2.0 percent points,” Macquarie said.

Spot platinum was last trading around $1,200 per ounce, down from a 2014 peak of $1,520 in July but up from a low of $1,178 in November.

(Editing by Mark Shaw)