Demand from the automotive sector is the largest demand segment for platinum, accounting for around 40% of yearly platinum demand.
The industry mainly uses platinum in autocatalysts or catalytic converters in internal combustion engine vehicles.
In an article on July 30, the World Platinum Investment Council (WPIC) said investor sentiment towards platinum was heavily influenced by trends in the automotive sector, which has had to overcome significant challenges, including the Dieselgate scandal, in recent years.
This year, automakers are feeling the negative impact of the Covid-19 pandemic. In the first half of this year, global light vehicle sales contracted by 28% year-on-year, with European sales down 43% year-on-year.
Lower vehicle sales have a negative impact on platinum automotive demand, the WPIC lamented, noting, however, that recent developments in the automotive sector point to a more positive outlook for platinum automotive demand than headline light vehicle sales data alone might suggest.
Simultaneously, several automakers are expanding their ranges of diesel-hybrid models as they seek to comply with a strict new standard for vehicle carbon dioxide (CO₂) emissions, which has come into force across Europe, or face heavy fines.
Diesel vehicles offer greater fuel efficiency (more miles to the gallon or fewer litres per 100 km) compared with gasoline vehicles, which means less CO₂ emissions and greater demand for platinum.
Increased use of platinum to control emissions is not confined to passenger cars, either, the WPIC added, noting that an unexpected trend over the first five months of the year had been the quick recovery in heavy-duty vehicle (HDV) production in China, where 90% of Chinese HDVs have diesel engines that use platinum-based autocatalysts.
China is also a significant market for HDV production, accounting for over 40% of all HDVs produced globally, according to the WPIC.
However, factory shutdowns in China owing to Covid-19 reduced HDV production in February by 51% year-on-year.
At the time, the WPIC said this had led market commentators to forecast double-digit contractions in production for the whole of this year. However, so far, this has not proved to be the case as, cumulatively, Chinese HDV production from January to May was almost 8% higher than in the same period in 2019.
Should HDV production in China remain at least at 2019 levels for the rest of the year, this − together with actual sales achieved until the end of May − will increase platinum demand in 2020, the WPIC believes.
Meanwhile, the case for substitution, where palladium used in autocatalysts on primarily gasoline, but also diesel, vehicles is replaced by less expensive platinum, has been strengthened by the economic impact of the pandemic.
Covid-19-associated disruption costs, combined with sales losses, could further incentivise automakers to accelerate substitution in order to save money – with cost savings of up to $140 per vehicle (at current prices) possible, the WPIC said.
“The extent of such substitution currently under way is not public data [owing] to its proprietary nature, but if only 5% of all palladium used in autocatalysts was replaced by platinum on the one-to-one basis necessary to achieve the same emissions control, this would equate to additional platinum demand of over 450 000 oz each year.”