Platinum Group Metals (PGMs), specifically Palladium (Pd), Platinum (Pt) and Rhodium (Rh) are essential ingredients to today’s three-way auto catalyst emission control systems.
They enable significant reductions in the primary contributors to air pollutions, including Carbon Monoxides (CO), Hydrocarbons (HC), Particulate Matter (PM), Sulphur Oxides (SOX) and Nitrogen Oxides (NOX) into the environment.
Lead efforts to reduce automobile emissions started in the early 1960s. Then, in the 1975 vehicle model year, new emissions standards as well as the increase in fuel usage forced the invention of the catalytic converter for exhaust gas aftertreatment. This is when global demand for the platinum group metals (PGM) really took off. Mining expanded in South Africa to meet this emerging demand. The regional scope of these vehicle emissions standards have since grown both geographically and to ever tightening specifications. Most recently, China has adopted widespread significant standards on par with the most stringent global standards used in Europe today. India is working to tighten its standards too, in an attempt to combat some of the world’s worst air pollution surrounding its population centres.
CURRENT AUTO CATALYST MARKET SITUATION
The overall global macroeconomic slowdown and the US-China trade war has somewhat stalled global vehicle demand since 2017. Although economically painful for many, it is a boon for the slowing PGM demand. Even in this slowdown, record amounts of PGMs are being consumed in auto catalysts. Rhodium is now $ 3,590 per troy ounce, and Palladium is $ 1,423. Platinum has an overall modest surplus in global production and has dropped down to $ 866, after spending the decade from 2006-2016 with an average above $ 1,400.
To meet the stringent emission standards, automakers are being forced to load more PGMs into the catalytic converters, even in hybrids. The popular Toyota Prius, for example, which uses a combination of lithium-ion battery technology and a conventional internal combustion engine (ICE), has challenges meeting these same standards.
DIESELGATE SCANDAL
The Volkswagen emissions scandal, also known as Dieselgate, began in September 2015, when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their emissions controls only during laboratory emissions testing, which caused the vehicles’ NOX output to meet US standards during regulatory testing, but emit up to 40 times more NOX in real-world driving conditions. Volkswagen deployed this programming software in about 11 mn cars worldwide, including 500,000 in the US, in model years 2009 through 2015 [1]. This scandal spread further to other vehicles makes and models.
This was the impetus for the real world driving test conditions – the Real Driving Emissions (RDE) test – that have since been developed and are now being deployed in the EU and China this year.
Another key byproduct of these scandals was the decision by automakers to move away from diesel, specifically in Europe and India, where diesel light duty vehicles compose some 50 % of the global light duty vehicle market. In the EU, a rapid decline in diesel vehicles sales has been supplanted with a rapid ascension of gasoline hybrid vehicles. It must be noted here that diesel auto catalyst designs are platinum rich, while moving away to gasoline increases demand for palladium instead of platinum.
HYBRID VEHICLES
A mileage of 50-55 mpg for a Toyota Prius hybrid sells itself. The economics of paying a modest $ 3,000 increment in the upfront price of the car can easily be offset with lower gas prices, especially in expensive gas regions like the EU (average of $ 1.52/l or $ 5.74/gallon) and California ($ 3.65/gallon).
It all sounds great for emissions, but wait. Any car with an engine, gas or diesel, is in a stressful emission condition under what is called a cold start. Starting a cold engine is when the emissions are highest. Hybrid vehicles are constantly turning their engines on and off, creating a more stressful condition. Even worse I am told is having a hybrid running under battery that gets to full speed, and then having to convert over to the engine, starting the engine cold at full speed. The new Real World Testing conditions capture this type of event by design. It forces the big auto designers to add more PGM’s to counteract these transient spikes in emissions. The data I have collected from carmakers shows hybrid’s PGM loadings at 10 % higher than a conventional vehicle.
The hybrid revolution is upon us. Economically, these vehicles sell themselves in lower operating costs, especially in higher gasoline regions of the world, (1).
LONG TERM VEHICLE GLOBAL DEMAND FORECAST
There is a huge disparity in market analyst views on the global vehicle demand, and its corresponding powertrain mix. The following is a bit of an aggregate of the best available. Several discussion points follow from this slide that are valuable, (2).
i. ICE engine demand growth: Most near term 10-year forecasts show ICE + Hybrid + PHEV Hybrid demand still growing until ultimately BEV penetration rates fold the PGM containing vehicle demand over. Analyst views range between the peak being 2027 to as late as 2032. The amount of the increase over 2018 ranges from 7-10 % additional;
ii. BEV penetration is coming: China is leading in BEV sales for now, but declining subsidies and incentives are perhaps going to slow this penetration. What strikes me most about this segment is the CO2 footprint in fabricating the Li-Ion batteries. It is not the glorious environmental wonder it’s touted to be, a fact that is gaining more traction in multiple forums. Also, the impacts to the power grid isn’t trivial. Power charging station infrastructure and the global power grid are other topic than needs to be developed to have this conversation;
iii. Global vehicle saturation: In 2018, there were some 1.4 bn vehicles on the road globally, which is likely to grow to 2.4 bn. Vehicle saturation metrics by region show plenty of room for growth in sales, especially in China, South East Asia, Russia/Eastern Europe and of course, India, (3). How many vehicles represents saturation in each of these markets with varying infrastructure? The key, however, in my opinion is the discussion of a shared economy. Young people aren’t too keen on getting driver’s licences and prefer using Uber, Lyft or some other shared service. This is the generational dynamic of the youth, which will ultimately change this total vehicle ownership model and the corresponding demand trajectory beyond 2030.
iv. Fuel Cell vehicle penetration limits: There is not enough platinum in the world to go too big on light duty vehicles (LDV). In my analysis, we need it instead for heavy duty and hydrogen generation. Penetration rates are less than 5 % with existing global mine infrastructure.
v. Average vehicle age is growing: The average vehicle life continues to grow. This helps reduce new demand, but also delays recycle supply.
vi. Demand for PGMs: Regardless of the ICE vehicle count, emissions standards are likely to push the demand of PGMs higher, even as BEVs take a greater market share.
PGM SUPPLY LANDSCAPE
Over 75 % of platinum and 80 % rhodium comes from one region, South Africa, where the world’s largest reserves of PGMs are found, (4). Only 55 % of palladium comes from South Africa with mining growth coming from Russia and North America, where palladium and some platinum are a byproduct of nickel and chrome mining. We are exceeding our currently mined plus recycled supply of rhodium and palladium. Above ground stocks, including investment populations like ETFs (Exchange Traded Funds) have been greatly diminished satisfying current demand.
Unfortunately, some of the world’s first/oldest and deepest PGM mines in South African western and eastern Bushveld complex are nearing scheduled end-of-life. Planned declines in production are going to hurt minor PGM metals, including rhodium and ruthenium over the next 15 years. (5) shows examples from mining companies of what their expected basked output will look like over the next 10-15 years – declining. To make matters worse for everyone, PGM minor metals like rhodium and ruthenium are hardest hit by these declines.
South Africa has three different sets of reefs that are rich in PGM, (6). In the north and extending into neighbouring Zimbabwe is the Platreef. On the western and eastern sides are the UG2 and Merensky Reefs at different depths, one after the other. The UG2 Reef has by far the highest composition of PGM minor metals. The red stars on (6) are the eastern and western Limb sites with these scheduled declines. The green stars on the map denote the PGM mining projects in construction, not yet online, but scheduled to launch in the next five years – so new mines, but in lower PGM minor rich zones.
AUTO CATALYST – THE DOMINANT DEMAND SEGMENT
Rhodium is used primarily to combat NOX emissions, but it also helps with contamination robustness and overall catalytic activity. Palladium is the primary element used on gasoline engines, while platinum is the primary element used in both light duty and heavy duty diesel vehicles catalysts. Today, 85 % of the rhodium and palladium global supply (mined plus recycled) goes into auto catalysts, whereas only 37 % of the global platinum supply is used.
As a result of increased PGM loadings to meet tightening global emission standards, and increasingly more difficult emission test conditions, prices of Palladium and Rhodium in particular have grown 3X and 6X respectively since January 2016.
AUTO CATALYST RECYCLE ECOSYSTEM
An extensive global auto catalyst recycle ecosystem is already in operation. As vehicles are scrapped, global collection networks starting at the vehicle scrap yards collect these PGM containing catalytic converters for recycle processing, (7). Most vehicles today last an average of 15 years and a very high percentage of vehicle catalytic converter precious metals are collected. India is lagging a bit in developing these scrap and recycle ecosystem since PGMs and auto catalyst use have not penetrated the Indian market compared to the US, EU and Japan. With more metal, a more complete and competitive recycle set of businesses should occur.
The scrapped catalytic converter, for example, is cut open (de-canned) and the core is collected, crushed into uniform material, sampled, and analytically assayed to verify PGM containing density, rung across a collection system that further separates the precious metals, then smelted concentrating further, and finally refine taking the compositions to 99.9 %+ for reuse, (8). The big discussion at recycle conferences this year has been the impact of Silicon Carbine, primarily from diesel particulate filters. These systems carry a new material into smelting and refine that simply muck up the process. It slows down processing, forcing systems to be purged and cleaned more frequently.
The recycle streams have been key to helping meet the ever growing auto catalyst demand for palladium and rhodium. Recycling has been key to connect supply with demand. It’s a healthy system, the likes of which we need more of in Solar PV, Li-Ion batteries and electronic waste streams.
AUTO CATALYST DEMAND FORECAST
The following illustrates my modelled projected forecast back in April 2019. The US-China trade war and subsequent slowdown in vehicle sales has certainly had an impact greater than initially modelled, but overall the trajectory for palladium auto catalyst demand is as follows. My forecast is compared to the other precious metal analyst views on same.
The most pertinent discussion around this is the topic of Pt for Pd design swaps. In gasoline engines, you can alter the ratio of Pt:Pd and still get the system to work. The swap may not be a perfect 1:1, but it is possible and has been done in the past. The complexity currently for larger auto OEMs is that the design emission criteria is now very difficult, and the ICE engineering resource pool is suddenly smaller. One key complaint from OEMs is that ICE engineers are being transferred into BEV and PHEV applications – leading to fewer engineering resources and tougher design targets.
The view in multiple conferences is that alternative designs swapping platinum for palladium in the ratios, relieving some strain on the stressed palladium market will come by model year 2023.
WHERE DO WE GO FROM HERE?
Big auto OEMs do have the ability to influence design loadings to some degree through additional optimisation efforts on the ICE alone. The greater the optimisation of the bare engine, the less work strain put on the catalytic converter to capture and manage transient spikes in emissions. Honda, for example, has historically been very good at this. However, this is a costly and manpower intensive approach and would add cost to the vehicle. Current OEMs are streamlining engineering resources on the ICE powertrain, in favour of new emerging BEV, PHEV and FCEV development efforts.
Triggering more platinum mining will be needed to grow fuel cells and the hydrogen economy. Simply put, we need more platinum starting in about 15-20 years to meet a large slope of PEM Fuel Cell demand. We are in time to trigger these additions. However, we are too late to trigger expansions (not already triggered) in the existing PGM pipeline for new mines to satisfy auto catalyst demand. Again, it is nominally a 10-15-year funding to production timeline, so it is already too late. The next best option is to push for incremental output gains from existing mining resources to get quicker from assets already in place through incremental expansion of existing infrastructure.
Regulation caps – the only other level to be pulled is to push back on governments and regulators insisting tightened emission controls.
Recycle capacity additions – more capacity has recently come online in India and China. Although large recycle volumes are not available in those regions yet, recyclers will need to consider shifting excess weight from other regions into these new smelting and refine operations to help meet global demand. Also new factory additions are needed.
Smelting and refine technology optimisation – Silicon carbide (SiC) is indeed mucking up today’s typical collector, smelter and refine process. Umicore is one exception touting an oxidation furnace approach that is far more robust to SiC and other next-generation difficult-to-process material sets.
It is not clear to me that all of these countermeasure in concert will be enough. On rhodium, we are almost certainly going to hit a limit, and soon. On palladium, it is not clear we have until 2023 model year to intercept a higher platinum rich gasoline design. Big auto OEMs will need to take action sooner, especially if the global economy accelerates.
REFERENCES:
[1] Wikipedia – https://en.wikipedia.org/wiki/Volkswagen_emissions_scandal
(The author can be reached at MattWatson@PreciousMetalsCommodityManagment.com)
AUTHOR
MATT WATSON is the Sole Proprietor of Precious Metals Commodity Management LLC in Livermore, California (USA)
________________________________________
SUMMARISING THE AUTO CATALYST PRECIOUS METALS DILEMMA
The problem with this situation includes:
1. We are just getting started. The global shortage is going to get worse through 2023. The PGM demands will only grow, even if global vehicle demand stays flat. Emission are getting tighter and tighter.
2. Testing conditions, like the RDE, are only going to propagate into additional regions. Just now they are rolling out in China and the EU.
3. Rhodium today is essential for NOX reduction. Design workarounds do exits, but at some multiples in cost.
4. Thank goodness for the global economic slowdown. Strange saying that, but in terms of PGM demand, it would be substantially worse right now if not for the slowdown. This, too, in time will be resolved and the macroeconomic condition should ultimately improve.
5. Global auto catalyst PGM recycling for over a decade has been key to connect supply with demand. Starting about a year ago, we are hitting global smelting and refining capacity limits. More capacity is needed in the US, EU and Japan. All of the major refiners are at full capacity.
6. Silicon Carbide (SiC) from substrates and Diesel Particulate Filters, and other hard to process materials, now entering the auto catalyst recycle stream is mucking up the smelting and refining operations, effectively lowering global capacity dealing with this difficult to process materials. 2019 is estimated to have 9 % of the auto scrap population with SiC, which is projected to grow to 30 % of the mix within five years.
7. BEV Penetration is too slow, and has its own global problems:
a. The CO2 footprint in creating these Li-Ion batteries is astonishing. Li-Ion BEVs (including fabrication of materials and operating the vehicle) are as dirty as many gasoline vehicles emissions today over their lifetime;
b. The lack of a Li-Ion recycle ecosystem is leading to a new economic disaster with batteries accumulating in scrap yards;
c. The impacts to high rates of BEVs to the global power grid are significant.
8. ICE vehicle demand requiring catalytic converters is projected to have roughly 7-10 % additional growth upside over the next decade, before BEV penetration rate turns the ICE vehicle demand curve over.
9. Fuel cell vehicles penetration is limited by the available global supply of platinum. Light duty penetration rates would be small even with aggressive propagation initiatives.
a. Note that gasoline auto catalyst designs are palladium rich, where diesel catalyst are platinum rich;
b. The auto catalyst swap for fuel cell catalyst platinum is not 1:1 on gasoline. The swap on heavy duty diesel auto catalyst platinum for HDV fuel cell platinum is far more in balance.
10. Big auto OEM efforts to modify the gasoline three-way catalyst design ratios have been hampered to date. The best outlook on an intercept of a more platinum-rich gasoline engine design is Model 2023 (build volumes starting ~August 2022).
11. Tightening global emission standards every year.
12. More complex Real World Emission test protocols.
13. Reduction in palladium-rich diesel vehicle demand.
14. Increase in palladium-rich gasoline vehicle demand.
15. Increase in palladium-rich PGM loadings with increased hybrid vehicle demand.
16. Depleted above ground palladium ETF stocks. Investment bullion populations do exist beyond just ETF physical positions.
17. Palladium structural supply versus demand deficit is going to be stressed further through 2023. Can it sustain this additional strain? I personally doubt. All PGM mining sites globally are pushing production recently as PGM basket prices have risen, but is a 2 % global surge enough?
18. Small rhodium ETF position is nearly fully depleted, and small speculative physical position
in the minor PGM.
19. Rhodium structural supply versus demand deficit is a broken situation. Something has to give.
20. Macroeconomic recovery will come; it is just a matter of time.
By Naveen Arul
Source: https://autotechreview.com
CUT COTS OF THE FLEET WITH OUR AUDIT PROGRAM
The audit is a key tool to know the overall status and provide the analysis, the assessment, the advice, the suggestions and the actions to take in order to cut costs and increase the efficiency and efficacy of the fleet. We propose the following fleet management audit.
