Last year, China's car imports hit an all-time high. And since most of those cars run on gasoline, China's oil consumption has skyrocketed over the past decade. It now imports more oil than the U.S.
However, China's cars are also contributing to a serious problem: pollution.
China's air quality is already terrible from the coal-fired plants that produce the country's electricity. Adding millions upon millions of cars is making it worse. Major cities like Beijing (the capital) are often shrouded in smog.
In order to combat its pollution, the Chinese government has instituted a vehicle-emission standard equal to Europe's pollution standards from 2010. These standards won't take effect until 2018... But they're likely to make precious-metals investors a lot of money over the next few years.
Here's why...
The key to cutting China's vehicle pollution is catalytic converters.
Catalytic converters are devices that convert harmful car emissions to less-harmful car emissions. They contain thin strands of platinum and/or palladium. These two semi-precious metals have unique chemical properties. They act as catalysts, speeding up reactions and making them more efficient.
Since most vehicle pollution comes from incomplete combustion (an oxidation reaction), these metals are excellent at reducing pollution. They act as filters that help finish the process of combustion.
That means the vehicle produces far less carbon monoxide (a bad actor that causes smog). It also reduces the amount of un-burnt fuel in the exhaust.
According to the new standards, there must be one of these filters, or catalytic converters, on every new car and truck in China.
And China's car culture is just getting started...
As I mentioned yesterday, in 2012, there was about one car for every 85 people in China. In America, the ratio was 0.9 cars per person – almost one car for each person. This simple comparison shows
how massive the Chinese automobile market could grow.
China's imports of cars and chassis (which become cars) hit an all-time high in November. The total number of cars sold in China from last January to September was a massive 12 million, according to the
Financial Times. That's an enormous volume, up 15% from the previous year.
As resource-investing guru Rick Rule pointed out to me recently, that's also an enormous amount of demand for platinum and palladium. According to the bank HSBC, China's platinum imports hit a 30-month high in September. (China consumes a huge amount of platinum for jewelry as well.)
China's demand isn't the only thing that could drive platinum prices higher.
About 70% of the world's supply of platinum comes from South Africa. The country is a political basket case. Mining strikes are practically a national sport.
In fact, it was reported on Monday that at least 70,000 South African platinum mine workers are planning to begin one this week. Any strike in South Africa can depress supply.
With China setting a new record for vehicle demand and the looming supply issues, it looks likely that platinum will enjoy a bull market in the coming years. If you don't want to buy physical platinum, an easy way to participate in
rising platinum prices is through the
Sprott Physical Platinum and Palladium Trust (
NYSE SPPP,
Stock Forum). It's a fund that rises and falls with platinum prices.
Although it's fashionable to predict an economic meltdown in China, the facts say its economy is still growing. Commodity and auto imports are at all-time highs. And this means higher prices for related commodities.