In this publication we focus on the impact of our our four automotive scenarios on the platinum and palladium price outlookThe-Electric-Vehicle-reality-16-November-2017.pdf (557 KB)
The electrification of transport will have a big impact on specific industries and commodity markets during the next couple of decades. We will examine a number of aspects of the changes to come in a series of reports. As the future is uncertain, we have developed four automotive scenarios, which will be the basis for these reports. The four scenarios are presented in the tables below and in more detail in the pdf. In this report we will focus on the impact of our four scenarios on the platinum and palladium price outlook.
Today’s platinum group metal loadings for Light Duty Vehicles
Autocatalyst demand accounts for roughly 40% of total demand for platinum and 75% of total demand for palladium (see graph on the left below). Part of this autocatalyst demand comes back in supply in the future through recycling. The graph below on the right shows that autocatalyst scrap supply is increasing over time as the number of vehicles worldwide is increasing as well. Moreover, the attractive price (in the case of palladium) and the focus on sustainability play a role as well. It is likely that the upward trend will continue going forward. We expect that platinum and palladium supply will increase by 5 to 10% by 2040 because of higher recycling.
According to Thomson Reuters, the average platinum group metals loadings (PGM i.e. mainly platinum, palladium and rhodium) for Light-Duty Vehicles (LDV) are slightly above 5 grammes for diesel cars and around 3.2 grammes for petrol cars. Autocatalysts for diesel cars largely contain platinum and to a lesser extent palladium and rhodium. Meanwhile, catalysts in petrol cars mainly contain palladium and some rhodium. Fuel Cell platinum cars currently contain platinum loadings that are around five times higher than those of diesel cars. In contrast, electric vehicles don’t contain platinum or palladium.
We expect that the new emissions standards in various countries are likely to result in higher platinum group metals loadings in car catalysts. This will probably result in higher platinum and palladium demand in the near term supporting platinum and palladium prices. However, over time we expect that technology will result in lower loadings. By 2040 (our base scenario) we expect that the platinum loadings for fuel cell cars will converge to the current platinum loadings of diesel cars.
Base scenario: 60% of new car sales to be electric by 2040
This base scenario is negative for platinum demand…
In our base scenario we expect that the share of diesel cars in the total global annual light duty vehicle sales will drop from 20% today to around 2% in 2040. Meanwhile, we expect PGM loadings per car to decrease because of technology. This scenario will have a dramatic impact on platinum demand for autocatalysts. We expect platinum demand from car catalysts to drop by 65% by 2040 compared to today. If other demand (such as demand from jewellery, glass electronics, petroleum, other industrial and chemical) remains close to its long term average, it is possible that total demand for platinum will decrease by 30% by 2040.
Over this period we expect mine supply to decline because of lower ore grade and the difficulty of finding platinum. However, we expect scrap supply to increase because of a larger total vehicle float and this will more than offset the decline in mine production. All in all, our base scenario will be negative for platinum prices because we expect excess supply to occur. Over time, platinum prices could drop to USD 500 per ounce in this scenario, which is close to -45%. In the near term, we expect platinum prices to recover as fundamentals are not as weak as investors now anticipate.
… and negative for palladium demand
In our base scenario, palladium demand will also be hit hard over time. The market share for petrol cars will drop substantially. We expect that the total number of petrol cars sold will decline to around 43 million cars from 70.5 million cars today. This will translate to roughly a 40% decline in global palladium demand by 2040.
We expect palladium mine supply to decrease considerably. However, scrap supply will increase as well and this should more than offset the decline in mine supply. All in all, in our base scenario we expect palladium prices to drop because of lower autocatalyst demand and higher scrap supply. In short, the supply-shortage will disappear in our view and turn into a, oversupply situation. Therefore, we expect prices to drop to USD 400 per ounce over time, which is around -60%.
Scenario 2: 30% of new car sales to be electric by 2040
This scenario is less negative for platinum and palladium prices
In scenario 2 we expect that electric cars will only be 30% of global LDV sales. That still represents a sharp increase in electric vehicle sales compared to today, while the number of petrol cars will rise modestly in contrast to our base scenario. This is because the global annual increase in LDV sales will more than offset the decrease in market share for petrol cars. This scenario is the least negative scenario (of the four) for palladium prices. In this scenario global palladium demand could decline by 3% mainly because of efficiency and lower palladium demand for diesel cars (diesel car catalysts also contain a small amount of palladium). As a result, the supply shortage will ease. Therefore, we expect prices to decline to USD 700 per ounce over time. This scenario is also negative for platinum prices. All else being equal, global platinum demand could drop by 20%. As a result prices could decline to around USD 600 per ounce.
Scenario 3: 80% of new car sales to be electric by 2040
The most negative scenario for platinum and palladium prices
This scenario 3 is by far the most negative for both platinum and palladium demand. Market share of petrol and diesel cars will drop sharply. This will translate into a sharp drop in autocatalyst demand for platinum and palladium as well. In the case of platinum, it is likely that global platinum demand will drop by 35% (all else being equal) and global palladium demand by 70%.
Palladium demand is impacted more because autocatalyst demand is a higher percentage of total demand. In the case of platinum there is still jewellery demand that could dampen the impact of a drop in autocatalyst demand. In this scenario we expect platinum prices to drop to USD 300 per ounce and palladium prices to drop to USD 100 per ounce over time. We expect the supply-demand balance for palladium to move to significant excess supply.
Scenario 4: 30% of new car sales to have a fuel cell engine by 2040
A bull case for platinum prices but negative for palladium
This scenario is the most positive scenario of the four for platinum demand and the platinum price outlook. Even though diesel cars will lose an enormous amount of market share, fuel cell cars’ share of global Light-Duty Vehicle sales will rise to 30%. In this scenario we expect global platinum demand to increase by 30% and platinum prices to move towards their 2008 all-time high of some USD 2,300 per ounce. Today, fuel cell cars contain around five times more platinum than diesel cars. Over time, we expect that technology will result in sharply lower platinum loadings for fuel cell cars. For this scenario we expect that the platinum loadings for fuel cell cars will be around today’s platinum loadings for diesel cars. It is possible that the loadings will be greater than this. If that is the case, platinum prices will go higher than we assume. However, we expect global palladium demand to decline by 25% because of a decline in autocatalyst demand. As a result, we expect palladium prices to decline to USD 500 over time.
In our base scenario we expect that the share of diesel cars in the total global annual light duty vehicle sales will drop from 20% today to around 2% in 2040. Meanwhile, we expect PGM loadings per car to decrease because of technology. This scenario will have a dramatic impact on platinum demand for autocatalysts. We expect platinum car catalyst demand to drop by 65% in 2040 compared to today. This results in a drop of total platinum demand close to 30%. Prices will also drop substantially to some USD 500 per ounce in 2040. In the near-term we expect platinum prices to be supported though because of higher loading resulting from tighter emission standards.
Palladium demand will also be hit hard. We expect that the total sales of new petrol cars will decline to around 43 million cars from 70.5 million cars today. This will translate in roughly a 40% decline in global palladium demand by 2040. Prices will drop to some USD 400 per ounce in 2040 because of sharp drops in demand and considerable increase in auto catalyst scrap supply.
Our scenario 2 (30% of new cars sales will be electric by 2040) is less negative for platinum and palladium prices compared to our base scenario while our scenario 3 (80%of new cars will be electric by 2040) is the most negative for the platinum and palladium price outlook. However, in our scenario of a dominant role for fuel cells in LDV (scenario 4), platinum prices could rise to 2008 all-time high of USD 2,300 per ounce. Meanwhile, we expect palladium prices to decline also in this scenario.