Platinum, Palladium Funds Have Record Drop on Emissions Concern

  • Emissions scandal helping cut ETP demand, Deutsche Bank says
  • Fund holdings of the metals are at lowest in more than a year

Investors dumped a record amount of platinum and palladium from funds backed by the metals last month on concern that demand will ease in the aftermath of the Volkswagen AG emissions scandal.

Platinum holdings in exchange-traded products slid 5.8 metric tons while those of palladium dropped 8.3 tons in October, the most since at least 2007, data compiled by Bloomberg show. Combined, the assets have slipped almost 10 percent since it emerged in September that Volkswagen had rigged diesel vehicles to help them pass emissions tests.

Both metals are mainly used to curb vehicle emissions, and investors may be concerned that carmakers will turn to alternative methods for reducing the gases, such as shifting to more battery-powered cars, according to Deutsche Bank AG. That would cut demand for platinum that’s mainly used in diesel engines and palladium that’s favored in gasoline types. Auto companies accounted for 45 percent of platinum demand and 80 percent of palladium consumption last year, Johnson Matthey Plc estimates.

The amount of metal held in platinum and palladium exchange-traded products fell by the most on record in October.

“Diesel-gate has certainly had an impact on investor sentiment in the platinum-group metals,” Grant Sporre, an analyst at Deutsche Bank in London, said by phone. “There is a fear that platinum and palladium may lose market share to alternative technologies for reducing car emissions.”

Investors sold 1.2 tons of platinum from ETPs on Friday, the most since June, and are holding the least since April 2014. They sold 2.8 tons of palladium on Friday, the most in more than a year, and own the smallest amount since May 2014.

A reduced appeal of using platinum and palladium as a currency and equity hedge in South Africa also contributed to the outflows, Sporre said. The largest platinum ETP and the second-biggest palladium product are listed in the country.

Prices have fared better in recent weeks. Platinum, trading at $974.80 an ounce in London, has rebounded about 9 percent since touching a six-year low on Oct. 2. Palladium climbed 27 percent since reaching a five-year low in late August. It was at $661.33 an ounce in London on Monday.

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