electric vehicle lithium
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The rise of the electric vehicle will have a negative long-term impact on demand for platinum and palladium, due to use in conventional gasoline and diesel vehicles.

Despite this, the low penetration of the electric vehicle in the broader autos market forecast over the next 10 years and continued growth in platinum /palladium-containing hybrid vehicle sales will sustain demand for both metals in the shorter term, delaying any serious effect in this regard over 2017-2026.

This is the view of BMI Research – a unit of the Fitch Group.

In previous analysis we outlined how the electric vehicle revolution will be a positive demand game-changer for various metals including lithium, cobalt, copper and nickel.

Conversely, both platinum and palladium metals will be among the biggest losers from electric vehicle growth due to their primary use in internal combustion engines (ICE), found in gasoline and diesel cars, that will witness a decline in production as automakers look for more environmentally friendly options.

However, the continued use of plug-in-hybrids and hybrid vehicles (PHEVs) that comply with emissions regulations, coupled with the low penetration of electric vehicles expected in the coming years means any considerable negative demand pressure will only be felt on a multi-decade horizon.

On the supply-side, ongoing palladium and platinum supply disruptions among major producers will tighten both markets in the coming years, providing upside pressure to an otherwise challenging price environment over our forecast period.

We expect prices for both platinum and palladium to continue diverging in the coming quarters.

 

For the first time in over a decade, palladium prices broke through the US$1,000/oz in October 2017 and overtook
platinum prices.

This price trend comes as demand for platinum, used primarily in diesel-fueled vehicles, continues to takes a hit from the repercussions of the Volkswagen diesel emissions scandal which has subsequently benefited palladium,
used more widely in the now favored gasoline-fueled vehicles.

 

Electric vehicle growth to harm demand outlook …

Platinum and palladium are primarily used in catalytic converters which convert toxic gases and pollutants from ICE vehicle exhausts into less toxic pollutants.

Up to 80% of demand for palladium and 40% of demand for platinum is accounted for by their use in vehicle exhausts.

The entry of new electric vehicles that have no exhaust and therefore no catalytic converters made of platinum or palladium, will pose considerable downside risks to both metals’ future demand outlook.

BMI’s Autos team expects the shift from ICEs to electric vehicles to become a growing trend due to government subsidies for electric car purchases aimed at supporting carbon emission targets.

For example, automaker Volvo announced earlier this year that every car launched from 2019 onward will have an
electric motor.

Furthermore, major markets have already announced goals to completely ban ICE vehicles in the coming decades in order to comply with emissions targets.

The UK and France will ban the sale of new gasoline and diesel cars by 2040, India aims to do by 2030 and Norway by 2025, while up to 10 other countries have announced similar initiatives.

… But only in the long-term

Despite the growing demand-side risks, growth in electric vehicle sales volumes will only begin to significantly dent platinum and palladium consumption on a multi-decade horizon.

Even though we forecast the pure electric vehicle fleet to grow by an annual average of 41.6% from 2016 to 2025 to 23.6 million units, electrified cars will only account for 3.5% of total passenger cars on the road by 2025.

Furthermore, hybrid cars which use both electricity and ICEs and therefore contain palladium or platinum, will remain in use for the foreseeable future.

Hybrid vehicles are considered to be environmentally friendly enough to not be included in the gasoline and diesel vehicle bans being imposed by governments globally.

For example, hybrid vehicle sales will not be included as part of the ICE-vehicle ban proposals in the UK, France and Norway.

We are forecasting robust annual average growth of 36% for PHEV sales over 2017-2025, faster than any other vehicle type.

This will offset the effects of slowing ICE sales growth rates that would reduce overall demand for platinum and palladium in the coming years.

Supply disruptions to drive market tightness

On the supply-side, continued disruptions among struggling platinum group miners and weak project pipelines will weigh on production growth in key producing countries.

In South Africa, the largest platinum group metals producer in the world, the sector will continue to suffer from high costs, labor unrest and exchange rate volatility.

For example, Anglo American Platinum reported a 20% drop in earning s in H117 due to lower production results
stemming from a strong rand and low platinum prices, while Lonmin announced in October 2017 that it plans to cut over 1,000 jobs before end of year, plagued by rising costs .

Russian miner Norilsk Nickel witnessed a 4% y-o-y drop in platinum output over H117 due to low platinum prices, while palladium production for the company stagnated over the same period.

We expect few capital investments into new projects by platinum group miners in Russia in the coming years, with
only two new palladium projects and one new platinum project currently in the pipeline, according to our key mining projects database.

As a result both Russia and South Africa will witness minimal production growth in platinum and palladium over 2017-2026 adding to the existing market deficits, which in the case of palladium is close to 770 koz as of September 2017, according to Citigroup.

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