Some American OEM Car Makers Use Hardly Any Platinum In Their Catalytic Converters, So Where Is the Demand?

Implications: The once every 7 years or so platinum group metals, PGMs, shortage panic is off and running. The producers and trading companies are also panicked. Costs of producing new platinum are skyrocketing and the producers and traders know that this will ignite a new emphasis on replacing PGMs with much cheaper metals and processes. In 2001 the electrical and electronics industry responded to the last panic by replacing palladium completely and sending the metal into a surplus condition which is still in existence. Unless the Chinese and Indian car industries mandate catalytic converters very soon the current panic could break the PGM market for good. 

Analysis:  Spiraling cost increases for labor and energy in the Republic of South Africa have impacted the country's mining industry very hard.

Power shortages the coming of which has been known for ten years, during which time the platinum miners could have easily prepared for them are 'suddenly,' we are told, causing reductions in production. We are further told that there is unprecedented demand for platinum and rhodium so that the supply reduction, 'naturally,' is leading to a spike in prices.

The truth is that unprecedented costs for Black Enterprise Empowerment, Environmental management of power generating stations, newly enfranchised labor, and fierce Chinese competition for supplies and infrastructure utilization have rocked the platinum miners on their heels.

There must now be increased prices to pay for continuing operations at reduced margins.

General Motors today uses hardly any platinum in its catalytic converters at all, less than, perhaps, an average of 1/2 of a gram per unit. This is the result of a decade of thrifting, which is now over and done with. It means that even at today's inflated prices there is no incentive either economically or from an efficiency point of view to further reduce platinum use.

The other car makers are not as advanced as GM and probably use more platinum, but they don't have the technology to thrift further.

Platinum mining is the only source of rhodium and their is no known way to substitute any other metal, PGM or otherwise, for rhodium in its sole function of reducing nitrogen oxides to nitrogen in exhaust streams.

Rhodium demand continues unabated and as long as internal combustion engines, ICEs, burn petroleum products it will be necessary. Of all of the new rhodium produced each year, about a million ounces, 87% is utilized in automotive emission control catalysts by the OEM automotive industries of the US, Western Europe, Japan, and Korea.

If China should now mandate catalytic converters then rhodium's price could skyrocket further.

This situation has caused western and southeast Asian car makers to look again at alternative technologies for controlling emissions from ICEs burning petroleum hydrocarbons, With rhodium at nearly USD$9,000 per troy ounce some alternative technologies are looking a lot better.

This has PGM producers and traders in a panic; they know that there is a limit to the price OEM automotive companies will pay for rhodium.

It is the small actual and perceived larger rhodium shortage not any platinum shortage that is driving the prices of both metals up.

You can't produce rhodium without producing platinum and the margins on rhodium have become fantastic as one million ounces of rhodium brings the same revenue as 4 million ounces of platinum. The production of seven million ounces of platinum to produce one million ounces of rhodium.

Note than if every car manufactured on earth used as much platinum
as GM's large cars there would be required 1 1/3 million ounces of platinum. Only half of the world's cars today use catalytic converters, so this number is too high.

The price of platinum is now killing jewelry demand.

Because the price of rhodium is so high the producers of platinum and rhodium could make money by selling all of the rhodium and just some of the platinum.  Could this be what is happening? Is the platinum shortfall contrived?

The increased manufacturing of hybrids and battery powered cars requires far less PGMs than ICE powered cars. In addition the current price of platinum brings to a halt the development of fuel cells based on platinum catalysts, so it, the high pricing, is counterproductive.

Isn't it the producers who should be panicking? When the power plants needed to alleviate the shortages in the RSA are up and running in three years it may already be over for the RSA's PGM producers; there are new mines outside of the RSA and new recycling plants being built, which don't need massive and expensive electric furnaces.

The US scraps more than 12 million cars a year, each has a catalytic converter. If the PGMs were recovered domestically from that scrap American need for new PGMs would drop by 75%! There is no better way to drive this to happen than to overprice the PGMs.

The pigs are moving out the bulls, and we all know how that ends.