(MENAFN- AFP) Platinum, used in the production of catalytic converters, crashed this week to the lowest price in 6.5 years on the back of Volkswagen's pollution cheating scandal.
The precious metal, which also has been weakened in recent months by worries linked to the flagging global economy, plunged Wednesday to $926.35 per ounce -- the lowest level since January 2009.
German carmaker Volkswagen faces a US criminal investigation and worldwide legal action after admitting on Tuesday that as many as 11 million of its diesel cars are equipped with devices capable of cheating emissions tests.
The scandal forced VW chief executive Martin Winterkorn to resign over the software that covertly turns on pollution controls when the car is being tested, and off when it is being driven.
"Platinum... is facing reduced demand in the wake of the scandal gripping the automobile industry," said ETX Capital analyst David Papier.
He added: "After it was revealed that Volkswagen had been manipulating emissions tests, platinum dropped to its lowest level in six and a half years."
The furore sent prices sliding as investors fret over reduced consumer confidence in diesel cars that mainly use platinum in their catalytic converters.
"Prices for the metal... came under substantial pressure this week, as investors continued to experience the fallout from Volkswagen's emission scandal," added Sucden analyst Kash Kamal
"Alleged attempts to rig US pollution tests have already damaged the automaker's reputation and any decision among consumers to shift away from diesel engines could put platinum prices under further pressure."
- 'Slowdown in demand' -
Platinum is mainly used for industrial purposes and about half of global demand stems from the production of catalytic converters for diesel cars.
Volkswagen is meanwhile the world's largest auto manufacturer by sales in the first half of this year, with car brands including Audi, VW, Seat and Skoda.
"The reason for platinum to be singled out (by investors) is because of its contribution to catalytic converters -- especially in diesel engines," added Saxo Bank analyst Ole Hansen.
"So if this scandal raises questions about the future of diesel engines, then it could also mean a slowdown in demand for platinum."
The price of sister metal palladium -- used in gasoline or petrol powered vehicles -- meanwhile climbed as a result of the Volkswagen affair.
In Friday trade, palladium briefly spiked to $677.80 per ounce, a high point last seen on July 7.
"Consumers may shift to gasoline cars -- where mainly palladium is used in catalytic converters in engines," added Georgette Boele, precious metals analyst at Dutch bank ABN Amro.
"Such expectations could have supported palladium prices and have resulted in palladium prices outperforming other precious metals."
Despite a supply deficit in the platinum market, prices have plunged by about 23 percent since the start of this year, weighed down also by concerns over the world economy -- and particularly China.
Analysts warn that platinum and palladium could diverge even further in the coming weeks and months.
"It is likely that the divergence between platinum and palladium prices in the near-term will continue as long as more details about this scandal are released," Boele said.
On the London Platinum and Palladium Market, platinum prices fell to $945 an ounce at Friday's fixing, compared with $988 an ounce a week earlier.
Palladium meanwhile changed hands at $611 an ounce, down from $672.
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