Challenges the auto industry faces for platinum demand

Demand from the automotive sector is the largest platinum segment, accounting for around 40% of annual precious metal orders. The primary automotive use of platinum is in autocatalysts or ‘catalytic converters.’ These devices reduce harmful emissions from diesel vehicles with an internal combustion engine. 

Trends in the automotive sector strongly influence investor sentiment towards platinum. It has had to overcome major challenges, including the Dieselgate scandal, which began in 2015. This year, automakers are feeling the negative impact of the Covid-19 pandemic. In the first half of 2020, worldwide sales of light vehicles contracted 28% year-to-year, and European sales decreased 43%, according to references from the World Platinum Investment Council.

The drop in vehicle sales harms automotive demand for platinum. However, recent developments in the automotive sector point to a more positive outlook for metal applications.

For example, sales of diesel-hybrid cars have resisted the downward trend in sales of European vehicles so far this year. In the UK, sales of soft diesel hybrids increased by 211% in the first half of 2020 to over 21,000 units sold. Similarly, sales of diesel hybrids increased by 44% and 55% in Spain and Germany, respectively.

Building diesel hybrid vehicles support demand for platinum

At the same time, several automakers are expanding their diesel hybrid model ranges. They seek to meet a new compelling standard for vehicle CO₂ emissions that have come into force across Europe. Diesel vehicles offer higher fuel efficiency (fewer liters per 100 km) compared to gasoline vehicles. It means less CO₂ emissions and higher demand for platinum.

The increased use of platinum to control emissions goes beyond passenger cars. An unexpected trend during the first five months of the year has been the rapid recovery of heavy truck production in China. 90% of diesel engines are using platinum-based autocatalysts. China is an important market for heavy vehicle production, it represents more than 40% of all produced worldwide.

Elsewhere, palladiums used in gasoline autocatalysts are replaced by less expensive platinum vehicles. The economic impact of the pandemic is strengthening this trend. The disruption costs associated with the Covid-19, combined with lost sales, could further encourage automakers to speed up the substitution to save money. At current prices, they could make potential savings of up to $140 per vehicle.

The scope of such substitution currently in progress is not public data due to its proprietary nature, but if only 5% of all palladium used in autocatalysts were replaced by platinum as needed to achieve the same emission control, this would amount to an additional demand for platinum of more than 450 oz per year.