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Emission scandal’s impact on platinum overdone
Platinum and Palladium Update – Emission scandal’s impact on platinum overdone
• Negative sentiment around platinum out of sync with the metal’s positive fundamentals
• Misconception about role of precious group metals (PGM) in nitrogen oxide (NOx) treatment unduly impacts the metals
• Capex reduction by miners to curb platinum supply
• Record US auto sales spur palladium prices higher
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.
Understanding the intricacies of the emissions
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 emphasizing 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 figure below depicts the treatment of the HC, CO, NOx and particulate matter (PM) at different stages of the emission cycle using the SCR system.
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.
No fundamental impact on platinum
Despite having no role to play in the final stage of the after treatment of NOx emissions platinum suffered the brunt of the scandal. 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% 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.
Gold:Platinum ratio at 19 year high
Plunging platinum prices have led a sharp rally in the gold to platinum ratio and could help switch investor preference for cheaper platinum jewellery. The onset of the festival season in India coupled with rising platinum imports from China (up 16% year on year) bodes well for Q4 demand outlook.
While platinum backed exchange traded fund holdings increased 4% from January to August this year, the past month holdings have pared back to 2% illustrating investor’s reaction to the news.
Supply
On the supply side, improvement in operational and safety performance helped South African platinum mine production rise 21% quarter on quarter in Q2 as reported by the World Platinum Investment Council (WPIC). Scrap supply declined in the second quarter by 5% as falling prices reduced auto catalyst collection rates. Despite a 9% rise in predicted total supply, WPIC have revised the 2015 forecast for the platinum market deficit to 445koz from 190koz in their latest Q2 update on the back of higher investment demand.
Capex reductions as miners struggle to survive
Rising costs of production amidst falling prices have forced the world’s largest miners of platinum to slash jobs and idle mines in an attempt to reduce capex. Lonmin, the world’s third largest platinum producer will cut annual platinum production by 100k ounces putting 6000 jobs at risk. While Anglo American platinum sold its three platinum mines in Rustenburg to Sibanye Gold. And its parent Anglo American plans to cut a third of the global workforce over the next few years. The closure of the Eland platinum mine in South Africa that produced 35k ounces of platinum in the first quarter has been confirmed by Glencore. Zimbabwe home to the largest platinum reserves after South Africa has asked miners to reduce power usage by 25% amid a water shortage that’s cut hydropower supply.
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.
Palladium: Fuelling up on diesel woes
Palladium known for generating 70% of its use in gasoline auto catalysts, surged to a 3month high $712. Fears of a shift in investor preference to gasoline powered engines coupled with the best US auto sales in more than a decade improved the demand outlook for palladium.
In addition President Li Keqiang’s announcement on 22 September to accelerate construction of electric-car charging facilities in China boosted palladium prices. While in reality palladium has no role to play in electric cars, the government’s commitment to clean energy was bolstered, aiding the pollution abating metal.
The rise in Chinese palladium imports of 14% in August closely tracked by rising auto sales of 12% created a favorable environment for palladium’s demand.
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2024 was a landmark year for bitcoin, solidifying its role as a fully institutionalised asset class.
Institutional inflows into physical bitcoin exchange-traded products (ETPs) reached nearly $35 billion globally, signalling a major shift in how traditional investors view crypto. As bitcoin continued to enhance portfolios’ risk-return profiles, more institutional investors followed suit, reshaping the financial landscape.
Looking ahead, 2025 promises to bring exciting developments across the crypto ecosystem. Here are the top five crypto trends to watch.
Fear of being left behind
The era of bitcoin as a niche investment is over. Institutional adoption is creating a ripple effect, forcing hesitant players to reconsider. Portfolios with bitcoin allocations are consistently outperforming those without, highlighting its growing importance.
Figure 1: Bitcoin in a multi-asset portfolio
| 60/40 Global Portfolio | 1% Bitcoin Portfolio | 3% Bitcoin Portfolio | 5% Bitcoin Portfolio | 10% Bitcoin Portfolio | MSCI AC World | Bloomberg Multiverse | Bitcoin | |
| Annualised Return | 5.77% | 6.46% | 7.83% | 9.20% | 12.57% | 9.07% | 0.56% | 56.24% |
| Volatility | 8.79% | 8.86% | 9.14% | 9.62% | 11.42% | 13.94% | 5.05% | 67.28% |
| Sharpe Ratio | 0.48 | 0.55 | 0.68 | 0.79 | 0.96 | 0.54 | -0.20 | 0.81 |
| Information Ratio | 1.01 | 1.01 | 1.01 | 1.00 | ||||
| Beta | 70% | 71% | 73% | 75% | 81% | 100% | 24% | 181% |
Source: Bloomberg, WisdomTree. From 31 December 2013 to 30 November 2024. In USD. Based on daily returns. The 60/40 Global Portfolio is composed of 60% MSCI All Country World and 40% Bloomberg Multiverse. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investment may go down in value.
With bitcoin’s ability to noticeably improve portfolios’ risk-return profiles, asset managers face a clear choice: integrate bitcoin into multi-asset portfolios or risk falling behind in a rapidly evolving financial landscape. In 2025, expect the competition to heat up as clients demand exposure to this powerhouse cryptocurrency.
Expanding crypto investment options
In 2024, regulatory breakthroughs opened the doors for physical bitcoin and ether ETPs in key developed markets. This marked a critical step towards making cryptocurrencies mainstream, providing seamless access to institutional and retail investors alike.
Figure 2: Global physical crypto ETP assets under management (AUM) and 2024 net flows
Source: Bloomberg, WisdomTree. 02 January 2025. Historical performance is not an indication of future performance and any investment may go down in value.
In 2025, this momentum is expected to accelerate as the crypto regulatory environment becomes more friendly in the United States and as key developed markets follow Europe’s lead and approve ETPs for altcoins such as Solana and XRP. With their clear utility and growing adoption, these altcoins are strong candidates for institutional investment vehicles.
This next wave of altcoin ETPs will expand the diversity of crypto investment opportunities and further integrate cryptocurrencies into the global financial system.
The maturing of Ethereum’s layer-2 ecosystem
Ethereum’s role as the backbone of decentralised finance (DeFi), non-fungible tokens (NFTs), and Web3 is unmatched, but its scalability challenges remain a hurdle. Layer-2 solutions—technologies such as Arbitrum and Optimism—are transforming Ethereum’s scalability and usability by enabling faster, cheaper transactions.
In 2025, Ethereum’s recent upgrades, such as Proto-Danksharding (introduced in the ‘Dencun’ upgrade), will drive layer-2 adoption even further. Innovations like Visa’s layer-2 payment platform leveraging Ethereum for instant cross-border transactions will underscore the platform’s evolution.
Expect Ethereum’s layer-2 ecosystem to power real-world use cases ranging from tokenized assets to decentralised gaming, positioning it as the infrastructure of a truly scalable digital economy.
Stablecoins: bridging finance and blockchain
Stablecoins are becoming indispensable to the global financial system, offering the stability of traditional assets with the efficiency of blockchain. Platforms such as Ethereum dominate the stablecoin landscape, hosting stablecoin giants Tether (USDT) and USD Coin (USDC), which facilitate billions in daily transactions.
Figure 3: Key stablecoin chains
Source: Artemis Terminal, WisdomTree. 05 January 2025. Historical performance is not an indication of future performance and any investment may go down in value.
As we move into 2025, stablecoins will increasingly interact with blockchain ecosystems such as Solana and XRP. Solana’s high-speed, low-cost infrastructure makes it ideal for stablecoin payments and remittances, while XRP Ledger’s focus on cross-border efficiency positions it as a leader in global settlements. With institutional adoption rising and DeFi applications booming, stablecoins will serve as the backbone of a seamless, interconnected financial ecosystem.
Tokenization: redefining ownership and revolutionising finance
Tokenization is set to redefine how we think about ownership and value. By converting tangible assets like real estate, commodities, stocks, and art into digital tokens, tokenization breaks down barriers to entry and creates unprecedented liquidity.
In 2025, tokenization will expand dramatically, empowering investors to own fractions of high-value assets. Platforms such as Paxos Gold and AspenCoin are already showcasing how tokenization can revolutionize markets for gold and luxury real estate. The integration of tokenized assets into DeFi will unlock new financial opportunities, such as using tokenized real estate as collateral for loans. As tokenization matures, it will transform industries ranging from private equity to venture capital, creating a more inclusive and efficient financial system.
For the avoidance of any doubt, tokenization complements crypto by expanding the use cases of blockchain to include real-world applications.
Looking ahead
2025 is set to be a defining year for crypto, as innovation, regulation, and adoption converge. Whether it is bitcoin cementing its position as a portfolio staple, Ethereum scaling for mainstream use, or tokenization unlocking liquidity in untapped markets, the crypto ecosystem is poised for explosive growth. For investors and institutions alike, the opportunities have never been clearer or more compelling.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
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