Palladium about to get hot because of VolkswagenAbout Platinum Group Metals
Platinum Group Metals consists of six metals, ruthenium, osmium, iridium as well as the main metals platinum, palladium and rhodium. Their main uses are in in automobile catalytic converters which use various amounts depending on emission standards of the country the vehicles are sold. Palladium is largest component of PGMs in a Catalytic convertor.
Pricing PGMS versus other precious and base metals
The current bear market of precious and base metals is well documented. Gold, silver and the base metals peaked in the spring and summer of 2011. Platinum interestingly peaked in spring of 2008 and if we take out the short squeeze in 2001, palladium peaked as recently September 2014 and the current price is only 22% below its high of $911 versus gold is off 40% from its high of $1923 in April 2011.
The Volkswagen emission scandal and what it means for palladium
Vehicle exhaust emission standard were first brought in in 1967 by the California Air Resources Board (CARB). As California was a major market for automobiles the auto makers quickly conformed and other jurisdictions adopted similar regulations. While the idea of catalytic convertors in automobiles in North America seems standard they were not regulated in Europe until 2000 and only on gasoline engines which at the time were approximately 50% of the vehicles on the roads.
A diesel engine presents several challenges to using a catalytic converter. A catalytic converter is usually a silicon honey combed structure coated with PGMs that do the “converting” of the bad gases to cleaner alternatives. The high soot content (carbon) from a diesel exhaust coats the honey comb structure which negates its efficiency. Engineers developed a “diesel particulate filter” essentially a soot trap which also quickly clogged so the engineers came up with further idea of burning off the carbon and converting it to carbon dioxide. This in its self presents further technical problems especially in smaller vehicles which automobile manufacturers have been aware of for decades.
When the Volkswagen scandal hit palladium was up $40 immediately and has been as much as $120 up in trading since then. Why? The future of diesel cars is in jeopardy. Gasoline engines need more palladium. Volkswagen and other diesel car companies have tried for years to get it right You can`t fight basic science and chemistry. Most observers think there is a “black box” quick fix that VW can bolt in to solve the problem but that’s not the case. If there was why would they threaten the existence of the company when a simple solution was possible?
Gasoline powered automobiles will be here for a long time no matter what the electric car promoters say.
The world largest automobile market in the world is China. In 2014 China produced 23.720 million cars. Beijing and Shanghai are the only regions with air emission regulations for automobiles using Euro III standards that would date from a 2006 period regulations.
The average gasoline engine auto catalyst uses approximately 3 grams of PGMs. If China adapted western standards on auto emissions that would require 71,160 tonnes or 2,288,000 ounces of PGMs. In 2014 world platinum and palladium production approximately 10.7 million ounces and above ground stocks including ETFs are approximately 14.5 million ounces