Summary
The production of platinum and palladium has doubled in the last ten years. Chinese demand for platinum for automotive emission control catalyst has just begun. Will western usage at current rates be possible if Chinese demand ramps up?
Analysis
This year, 2007, there will be 8 1/2 million cars made and sold in China; if current growth continues this figure could easily double by 2017.
By 2010 China may well manufacture 8 million of just passenger cars. If it does it will in fact then surpass American-owned OEM domestic American annual production of passenger cars, which is now at 8 million and holding.
The difference is that today most Chinese made passenger cars are small and do not require or utilize, even if by western standards they might require, a catalytic converter. Most of the largest cars made in China, which do use catalytic converters, are made by companies like GM's Shanghai based venture, and they are Buick models, or a Cadillac model, made specially for the Chinese domestic high-end market. GM actually makes and sells more Buick badged vehicles in China than it does in the US.
China has just one company licensed to import platinum group metals; that company supplies all domestic makers of catalytic converters even the Johnson-Matthey plant. For the Chinese market J-M must sell its platinum group metals to the Chinese distributor which then re-sells J-M its needs at a profit for it self. J-M is not the only supplier to the Chinese market, because China will not allow itself to be held hostage by any one supplier.
China today absorbs 1 million ounces of platinum per year; this is 14% of the total global production. The US uses at least 4 times as much only to make twice as many cars and trucks. This should sound a warning bell in all American OEM automotive purchasing offices, but it doesn't; they are short term thinkers and apparently oblivious to the danger of being cut off.
GM, ten years ago, was concerned enough to create an internal organization to make long term buys of critical metals such as the platinum group metals. Today the GM philosophy is to let the suppliers take the risk of price and availability; this turnabout by GM purchasing is due to the differing philosophies between the man who held the top purchasing job at GM ten years ago, Harold Kutner, and the man who holds it now, Bo Andersson.
The global production of platinum group metals has increased by about 2 1/2 times since 1997. There is little room to further increase this production, and, in fact, the current reserves of platinum are estimated to be only 100 million ounces, or just 14 years worth at current production.
If western use does not decrease and Chinese use just doubles there will be a severe shortage of platinum before 2017. In addition since rhodium is only recovered as a byproduct of platinum mining in southern Africa the new rhodium supply will cease as soon as the platinum is exhausted.
If China should mandate catalytic converters across the board for the 2012 Olympics there could easily be a dramatic supply shortfall of platinum and rhodium in the next 4 years.
Cars and trucks sold into the American domestic market, alone, today use 80+ % of all of the rhodium mined each year for automotive emission control catalysis. Only a small increase in the Chinese market will nudge rhodium into severe deficit.
Fuel cells are not a viable option, because today's fuel cells, such as the Honda design, use 2 or more ounces of platinum each in their construction. Thus each fuel cell power train uses as much platinum as 60 GM cars with internal combustion engines burring gasoline and equipped with catalytic converters.
It is of course always possible that cars not using either internal combustion engines or fuel cells, or using internal combustion engines burning hydrogen, will become a large part of the market thus reducing the demand for platinum group metals for emission control catalysis.
But until that begins to occur the purchasing groups at the world's OEM automotive companies will be unable to secure long term supplies or predict long term pricing of platinum group metals.
If, in addition, BHP buys AngloAmerican mining tomorrow, and this is a persistent rumor, how long before it could terminate Johnson-Matthey's exclusive marketing arrangement for Anglo's platinum group metals?
Is this why J-M is now branching out to encompass rhenium and perhaps even rare earths in its marketing?
There is no way to plan future production of motor vehicles without assessing the long term risks of supply of the platinum group metals. Yet, i don't know of any American OEM company that has done so.
