Diesel vehicles to play big role in future platinum demand

21st August 2015 By: Dylan Stewart - Creamer Media Reporter

The future demand for platinum-group metals (PGMs) will largely be rooted in the automotive industry, where PGMs are used to make catalytic converters and platinum to produce autocatalysts for diesel engines, says Japanese trading company Mitsubishi Corporation precious metals strategist Jonathan Butler.

He suggests that although car markets, especially in the developing world, are currently quite depressed, demand from these markets will drive the automotive industry in the long term and, therefore, PGMs demand.

While platinum has been substituted by palladium as an autocatalyst in standard petrol engines, it still has the core use of reducing hydrocarbons, nitrous oxide and carbon monoxide in diesel engines.

Platinum oxidises poisonous carbon monoxide into carbon dioxide (CO2), turns hydrocarbons into water and removes the oxygen from nitrous oxide, reducing it to nitrogen.

Butler states that over 90% of pollutants are changed into harmless gases by the latest Euro 6 vehicles, highlighting that one vehicle manufactured in the 1960s produced emissions equal to the emissions of 100 modern platinum-catalysed vehicles.

He cites a study conducted in 2013 by the International Platinum Group Metals Association, which concluded that the pollution saved by PGMs in motor vehicles outweighs that created during their being mined, to highlight that the pollution that PGMs prevent is significantly more than that which it creates.

Owing to the low capital expenditure at present on platinum mining in South Africa, output is expected to remain at just over four-million ounces a year over the next five years, Butler notes. He adds that, as South Africa is expected to flatline in terms of PGM production, while auto-atalyst demand – which forms well over half of the total PGM demand – is expected to grow, the industry will, therefore, likely experience a slight shortage of new supply.

Butler maintains, however, that, owing to significant above-ground PGM stocks, there will not be a significant shortage in the market.

Law of Demand
Butler emphasises the importance of law in the future of PGMs, specifically platinum, as the loadings of PGMs will increase as emissions controls become more stringent.

Ever since the first clean-air legislation, which included laws regarding automobile emissions in the 1970s, using PGMs to reduce pollution has consistently increased, he explains.

Butler points out that by 2020, the European Union is likely to have implemented its mandatory emissions reduction target for all new cars. By this year, manufacturers were required to have achieved a fleet average emissions level of below 130 g/km of CO2 for all new cars, with the new draft target, to be phased in from 2020 to 2021, set at below 95 g/km.

Should the target be exceeded, a fleet company will be charged a fine of €500 per vehicle, which could add up to billions of euros for automobile producers.

Diesel engines are more efficient than petrol in terms of their CO2 emissions for every unit consumed; therefore, car com-panies will favour producing diesel engines, which bodes well for platinum.

Butler points out that diesel engines are not only used in trucks and in vehicles for personal use, but also in trains, cranes and buses. However, he notes that there is no guarantee that consumers will buy diesel vehicles for personal use.

Furthermore, he highlights that, amid the current negative publicity surrounding diesel engines, there is a possibility that diesel vehicles could be restricted in cities like London and Paris.

Butler says some Euro 6 diesel engines have been shown not to meet emissions requirements under certain specific real-world driving conditions, but adds that modern platinum-catalysed diesel vehicles can meet the emissions requirements under a range of these conditions.

It is mostly the Euro 6 vehicles that use types of exhaust gas recirculation systems instead of platinum autocatalysts that do not meet nitrous oxide emissions control targets, Butler states.

He says the platinum industry has not done enough in highlighting the distinction between PGM-catalysed Euro 6 vehicles and those using exhaust gas recirculation systems or selective catalytic reduction systems that use a base metal instead of a PGM.

Platinum-catalysed diesel engines can meet not only current requirements but also future emissions targets.

Developing Demand
The PGMs industry will benefit if developing countries commit to emissions controls, Butler states.

Car sales trends will also change because the main automobile demand comes from emerging markets, where the automobile market is less saturated, he adds.

Vehicles in these markets will be cheaper and smaller, with a lower engine displacement, says Butler. While this is likely to entail lower PGM loading per car, it will likely be offset by the quantity of cars sold. In 2016, China, as an emerging market, is likely to sell more than 20-million cars, while the US will sell only 17-million.

Butler notes that China makes three-million heavy-duty vehicles a year, with Chinese trucks for the most part requiring no PGMs for emissions control. However, when further emissions controls are enforced by China, based on European standards, heavy-duty trucks will each contain several grams of platinum, which will cause a significant reduction in China’s vehicle emissions.

India is a big diesel market especially because diesel fuel is subsidised there, says Butler.

In the medium term, demand for PGMs is likely to be negatively affected by struggling emerging markets and this will particularly impact on palladium demand, says Butler. Indonesia has had a poor first half, Russia has had sanctions implemented against it because of its attack on Ukraine, with a subsequent debasement of its currency, and China has had a slowdown in economic growth.

However, in the long term, vehicle sales worldwide, especially in the developing world are expected to increase and this means a bright future for platinum, he concludes.