Started Op’s Nov. 2019 at H2Future Site, operated by Voestalpine in
Linz, Austria.  PEM 1,200 m3 H2/hr. for clean steel production
https://www.voestalpine.com/group/en/media/press-releases/2019-11-11-h2future-worlds-largest-green-hydrogen-pilot-facility-successfully-commences-operation/

Hydrous ruthenium oxide thin films deposited on ITO coated glass from an aqueous ruthenium chloride solution, or by direct PVD sputter. The cyclic voltammograms of this material show the capacitive behavior including two redox reaction peaks in each cathodic and anodic scan. The ruthenium oxide thin film electrode exhibits a 50% modulation of optical transmittance at 670 nm wavelength with capacitor charge/discharge.

Thank You            .

Contact Matt Watson at
+1 (925) 321-2686
MattWatson@PreciousMetalsCommodityManagment.com

Gold

• Minimal March-April 2020 COVID-19 Impact.
• V-shaped recovery was very quick followed by continued climb. 
• Gold has much more upside potential.

Supply Highlights: Gold is a finite resource who’s mined quantities will decline over the next decade.

Demand Highlights: 

• ~44% Investment - keeps climbing in 2020. One short-term risk is that some central banks could liquidate positions to offset COVID-19 driven declining revenues.
• ~40% Jewelry – significant China/India 2020 Jewelry demand drop as gold prices climb.
• ~16% Industrial - including electronics, medical, drug therapy, and many more.

Silver:

• Dramatic March-April 2020 COVID-19 Impact. Longer V-shaped recovery and recent climb.
• Silver has more upside.

Supply Highlights: COVID mining disruptions in numerous countries will continue in Q3/4 2020.

Demand Highlights: 

• ~25% Investment – climbing June/July 2020
• ~20% Jewelry
• ~55% Industrial – including Solar PV, electronics, printed electronics, ethylene oxide catalyst, solder materials, automotive.

Platinum

• Dramatic March-April 2020 COVID-19 Impact.
• L-shaped recovery.

Supply Highlights:  Clearly COVID related impacts in 2020 will limit supply.

Demand Highlights:

• ~25% Jewelry – is down in 2020
• ~25% Investment
• ~50% Industrial including 36% for auto catalyst materials, electronics, electrochemical, petroleum, and medical

Palladium

• Dramatic March-April 2020 COVID-19 Impact. 
• L-shaped recovery. Full recovery is very dependent on global auto sales response as Pd projected to remain in supply deficit for a few more years.

Supply Highlights:  Clearly COVID related impacts in 2020 will limit supply.  Recent Nornickel diesel spill impacts on Q3 output are very unclear.

Demand Highlights:

• ~20% Jewelry – is down in 2020
• ~10% Investment
• ~70% Industrial including huge % auto catalyst materials, electronics, electrochemical, petroleum, and medical

Rhodium

• Dramatic March-April 2020 COVID-19 Impact. Response post COVID-19 is paced by global auto sales.
• L-shaped recovery.

Supply Highlights:  S. African PGM Western Limb mining declines dramatically hurt future mined supply.

Demand Highlights –

• Automotive Demand is currently weak although with recovery will remain in structural deficit: Emission Control Catalyst /NOx Control – with little sign of design alternatives staged.
• Glass Production:  Pt/Rh alloys used in glass and glass fiber production systems.

Iridium

• Zero March-April 2020 COVID-19 Impact. 
• 2020 climb independent response to supply/demand fundamentals.

Supply Highlights  S. African PGM Western & Eastern Limb mining declines likely to reduce future mined supply.  Near term continued COVID-19 mining disruptions will further impact Iridium supply.

Demand Highlights –
Electronics demand is strong:  Crucibles for LED’s, OLED IrCl Materials, and SAW/BAW Filter demand will explode with 5G expansion.

• Automotive Demand is currently weak: Iridium and Pt/Ir Tipped Spark Plugs
• Electrochemical Demand is going to grow long-term:  Chlor-Alkali Industry, Waste Water Treatment, Hydrogen Electrolysis Catalyst Materials, Marine Ballast Waste Water Management
• Chemical Demand is also growing:  Acetic Acid
• Medical Demand Is Growing:  Radioactive Isotopes for medical imaging.

Ruthenium

• Positive March-April 2020 COVID-19 Impact. 
• 2020 climb due to supply/demand fundamentals.

Supply Highlights  S. African PGM Western Limb mining declines dramatically hurt future mined supply.

Demand Highlights –

• Electronics demand is strong:  Thick Film Resistors, Data Storage HDD’s, MEMS Sensors, and future Non-Volatile memories including SST-MRAM.
• Automotive Demand is currently weak: Ruthenium Spark Plugs and Electrochromic Coatings
• Electrochemical Demand is going to grow long-term:  Chlor-Alkali Industry, Waste Water Treatment, and Hydrogen Electrolysis Catalyst Materials
• Chemical Demand is also growing:  Caprolactam / Nylon 6 Filament, Acetic Acid, Fertilizer/Ammonia Catalyst. 

Precious Metals Industrial Demand
Automotive Demand – Virus has significantly impacted Jan-Feb demand

• Emission Control Catalyst Materials
  • Palladium loadings in auto catalyst remain elevated versus previous years.  Latest emissions standards in EU, China and US are driving higher loadings.
  • Diesel-Gate Responses
    • New RDE real world emission test conditions, which came in response to diesel-gate, are also driving higher loadings.
    • Hybrids carry higher loadings than ICE vehicles.  Hybrids are displacing LDV diesel vehicle demand in the EU.
• Automotive Electronics – drives Ag, Au, Pt, Pd, Rh, Ir demand in electronics
• Automotive Electrification (Hybrids, PHEV’s, BEV’s and FCEV’s) all carry higher levels of electronics and corresponding precious metals

Petroleum and Gas Catalyst Materials Markets – strong
Chemicals catalyst markets (EO, PX, Silicone, etc.) -  strong, China disruptions
Chlor-Alkali catalyst markets – strong, China disruptions 
Semiconductor and Electronics –

• Q1 China production certainly impacted, but year end surge still possible to help offset losses. 
  
• TSMC and other non-China foundry surge will help mitigate global risks.  Semi clean room garments help mitigate risk of virus spready.  Design thrifting occurring in MLCC’s and Resistors.

Be prepared for the PM’s to resume climb

• Gold:  Upside for Gold if Virus expands further and disrupts markets.
  • Monetary and QE policies all encouraging higher gold
• Silver:  Gold to Silver Ratio at record high levels.  Silver is due for a market tug higher.
  • Benefiting from Automotive Electronics content increases and electrification.
• Platinum:  Beat down hard (-11%) last week, may not recover as much as the others. 
  
  • Industrial demand is still modest, and investment demand has been key to holding 2019 levels.  Industrial demand is secure, but investment demand may not recover.
• Palladium: Structural deficit remains, and virus can lower annual deficit, but not likely eliminate it. 
  
  • Prices should resume climb. 
    
  • Increases in mining for Pd from Russia, N. America, and Zimbabwe are coming. 
    
  • Increased “baked in” higher Pd loadings in autocatalysts recycle will return more Pd recycle to meet demand as well.
• Rhodium:  Quoting DiNero – Forget About It.  No hope of rescue.
  
  • OEM auto-catalyst design changes needed to alter this explosion in price.  In the Pd/Rh Thelma and Louise analogy, Thelma may survive long term, but Louise … Nope
• Iridium:  Strong Industrical Demand
  
  • Ir Crucible markets (SAW Filters and Saphire LED) both climbing.
    
  • Chlor Alkali industries will continue to hold this precious metals at record levels.
    
  • OLED IrCl compound demand is also climbing.
    
  • Hydrogen Generation is a further demand risk for this segment.  
    
  • Look for a further 20-40% climb by year end.
• Ruthenium:  Surge in production from Furuya Japan.
  
  • Ru recent price decline aligns with Furuya Metals Japan massive Ru secondary refine to 60mt/year. 
    
  • This 1.9Moz refine capacity is fully utilized running PGM concentrate from Lonmin (now Sibanye) S. African operations. 
    
  • Look for tightness is supply to begin to occur as Chlor-Alkali and Hydrogen Electrolysis segments expand. 
    
  • Large risk from Semiconductor fab’s for Ruthenium wiring sub 5nm node (starting ~2025).

Deeper Diver Resources on the Auto Catalyst Market

• Is Rhodium Pulling a Thelma & Louise?
  • https://www.preciousmetalscommoditymanagement.com/blog/is-rhodium-pulling-a-thelma-louise
• The Auto Catalyst Precious Metals Dilemma
  • https://www.preciousmetalscommoditymanagement.com/blog/the-auto-catalyst-precious-metals-dilemma
• Clean energy might be the future, but there is no game plan - how the PGMs stand to break out
  • https://www.kitco.com/commentaries/2019-12-20/Clean-energy-might-be-the-future-but-there-is-no-game-plan-how-the-PGMs-stand-to-break-out.html

 
Looking ahead to 2020 and the next decade:
Can we expect another explosive year in precious metals prices?  What does history teach us?  Let’s review a few charts covering the past decade of price movement.

Gold – The fate of future gold prices hinges on the macro-economic issues.  Should commodity markets enter into a recession, or geopolitical strife including the continuing trade dispute with USA and China continue, then gold is very likely to continue its climb. 
​
Plotting the last 10-years of gold fix, indexing each year to lead January fix to year ending December fix.  As can be seen in the charts below, each of the metals past decade historical data would indicate:

 
Sputtering a layers of Ruthenium under the following multiple Platinum-Chrome-Cobalt magnetic layers provided columnar magnetic layer growth, allowing for dramatic areal density increases.

 
The long term Ruthenium price history is plotted below.  You can see the annotation for HDD PMR (perpendicular).  The HDD market went from very low amounts of Ruthenium Demand to being over 80% of the global Ruthenium demand for the next 3-years.  Finally starting in 2009, the HDD industry had saturated their Ruthenium Sputter Target pool accounts, and were off driving a series of thrifting actions including reduced Ruthenium Layer Thicknesses, alloying for reduced Ruthenium, and a technique called Ruthenium Refill, essentially taking a spent pure Ruthenium target and instead of returning to 65% of the unused weight back to refine, re-press the spent target with some additional fresh ruthenium, and repress the target back to its original shipped/new conditions.  This dramatically accelerated the target life cycle. That coupled with Ruthenium secondary refine optimization, refine cycle times were reduced from over 90 days to 21 days.  All of these actions compressed the weeks of supply needed to support the same media volume.  By 2011, the HDD industry was < 20% of the global ruthenium demand, buying only new ruthenium to top off its pool accounts and replace consumption onto the product.

HDD Ruthenium and Platinum Target Detail

Target Detail Includes Precious Metals Start, Ship and Spent Weight, Target Utilization, Refine Losses and Total Shield and Target Recovery Toz, for a Final Net Toz Consumption per Target.

Ruthenium HDD Industry Demand Model

A model is then created to transpose the media demand, into Ruthenium Target demand, to Ruthenium Pool Size Requirements, to Ruthenium Consumption, to Ruthenium Net Purchases year over year.

 
HDD Industry Ruthenium pool sizes peaked at about 1.2Moz in 2007, at the height of the Perpendicular Recording transition.  Secondary Ruthenium Refining capacities were still be added, and Pool Account saturation had been achieved.

Net Purchases of new ruthenium for HDD Industry pool accounts peak in 2006 at over 930koz.  This amount on its own exceeded mined production.  Only through the processing of previous years mined surplus concentrate was the overall global demand met.  As you can imagine, the price of Ruthenium had skyrocketed to nearly $800 Toz, up from a slumbering $70 before this HDD surge in buying.

HDD Ruthenium demand today is about 10% of the overall mined annual ruthenium.
 

Ruthenium HDD industry Demand Model Summary

Here is a graph illustrating the overall industry Ruthenium pool account sizes, against the context of the mined supply.  Also shown in the chart in the Red Line is the HDD Industry net ruthenium purchases to meet that peak demand and pool account saturation.

HDD PMR Platinum Demand Model

A model is then created to transpose the media demand, into Platinum Target demand, to Platinum Pool Size Requirements, to Platinum Consumption, to Platinum Net Purchases year over year.

Again this table capture the number of Pt Magnetic Layer targets were in demand.  Recall that as opposed to Ruthenium, which was a very high composition of 100% Pure Ru for over half of the targets, or RuCr or RuCo alloys with 80% ruthenium.  The Platinum targets were often lower in platinum content in the range of 14%-20%.  Therefore the total Platinum requirements were lower than Ruthenium.

 
Platinum HDD Industry Demand Model Summary
 
The Platinum peak industry pool account size was around 218 koz in 2009.  The peak net annual purchase was around 108k or 1.0% of the mined supply in 2006.

Solid State Drives

Now the most threatening issue to HDD’s, a rotable memory recording device with hundreds of moving part, is a fully solid state drive filled with NAND Flash Memory instead of a rotable magnetic dis and recording heads.  SSD’s are threatening HDD’s existence.

Just 20 year ago there were over a dozen HDD manufacturers.  Today there are three, Western Digital, Seagate, and Toshiba.  20-years ago there were 20 media manufacturers, today there are four.  Western Digital (including HGST), Showa Denko (independent), Fuji Electric (Seagate captive) and Seagate Technology.
 

Hard Disc Drives versus Solid State Drives

The current market is under some assault from a new technology Solid State Drives (SSD).  SSD’s are based on 3-NAND memory, operate faster, access data faster, but come at a significant price premium.   The current HDD and SSD market trends look like this.

HDD overall unit shipments are declining.  Not shown but Exabyte’s of HDD memory are actually increasing.  The HDD’s areal density is increasing faster than the unit decline, such that the overall HDD Exabyte’s shipped is increasing with few drives.  The media (or HDD platter that contains the data) shipment volume is also declining, and the average HDD discs per drive is also reducing.

 
Media Demand = Precious Metals Demand.   What is also key to note is that the HDD Media Shipments are declining.  The number of recording heads per drive matches the number of media surfaces in most drives.

This is key to the precious metals demand, is the media, not the heads.   The media contains approximately 98% of the Platinum and Ruthenium used in magnetic recording.  Note:  This excludes the HDD and SSD’s printed circuit boards and components, which in terms of e-waste is actually some of the most precious metals rich containing electronics that is out there. 

As for the media, since the fundamental film structure thickness have settled down, now only compositions of Platinum and Ruthenium alloys changes, not the overall thickness of the magnetic layers on the media.

SSD shipments can be seen increasing.  The SSD shipment volume should match or exceed that of conventionally rotatable memory by 2020-2021 time frame.

SSD’s as it ends up are faster, preferred many of today’s data centers Artificial Intelligence operations.  SSD’s do have limitation on the number of times you can successfully re-write data to the same device, where HDD’s are fairly limitless number of re-writes. SSD’s however are more expensive than HDD’s, making HDD rotatable memory the preferred media for many data centers, especially those that focus on video content, the largest amount of data stored.  The SSD vs HDD Cost per GB is expressed in the following chart:

Initially SSD’s were 10x higher in price than rotatable HDD memory.  From 2012, that SSD price multiplier dropped down rapidly with 3D-NAND expansion in the marketplace to about 3x in 2016.  10x to 3x in 4 years.  Then global demand for consumer electronics and smartphones taxed the global flash memory marketplace.  Almost overnight, Flash Memory prices for SSD’s nearly tripled in 2017 and early 2018.  It wasn’t until there was further expansion of 3D-NAND and more complex layering processes (up to 96-layers) that the industry overall supply picture once again exceeded global demand.  A flattening of the smartphone global unit demand also fed this oversupply situation.  Suddenly again, Flash Memory price wars are in full swing.  SSD are enjoying a best every 2.5 to 2.8x multiple compared to HDD prices.

One Last HDD Technology Transition
 
So in order to compete on cost with this SSD price premium, HDD’s need to take additional steps to lower the cost per GB.  There are actually two sets of technology that are being deployed.  Western Digital and Toshiba has recently rolled out MAMR, Microwave Assisted Magnetic Recording HDD’s.   Seagate is taking a much more dramatic design change to their media and heads once again rolling our HAMR, Heat Assisted Magnetic Recording.
 
MAMR uses the same perpendicular media film structure.  No changes to the Ruthenium and Platinum layers, use, or consumption per disc.

 
HDD’s last technology transition will be by Seagate in the form of HAMR, Heat Assisted Magnetic Recording.  This is a much more dramatic technology transition.  The Recording heads incorporate laser to heat the media magnetic layer to write the data.  The media platinum film structure changes from a PtCoCr (Platinum, Cobalt, and Chrome) based alloy and structure, to FePt (Iron Platinum) based film structure.  Platinum composition increase.  Taking into account film structure thicknesses, Platinum loading swill increase 1.7x over perpendicular.  However, there is zero, no Ruthenium in these FePt magnetic film structures.
 
Below are a few technical executive summary slides from Seagate illustrating the HAMR Technology.  The latest timing on Seagate’s HAMR is Seagate delivering HAMR CTU's by year end 2020, with a more significant commercial ramp in 2021.  Seagate has been running small amounts of HAMR drives into a partner OEM just to better baseline the overall yield, reliability, and scalability issues with this technology jump.

 
Ruthenium HDD industry Demand Model Summary

Using the same model we used to PMR, here are the reduced Ruthenium HDD Industry requirements when you shows Seagate with some 50% HDD global market share.  Not HDD+SSD Seagate only has some 35% market share today, but WD and Toshiba have larger SSD portfolio’s leveraging on the WD-Sandisc and Toshiba Memory NAND product base.

Also note the HAMR penetration will not be all of the remaining HDD’s.   Laptops, Desktops and many lower HDD capacity drives will never adopt HAMR.  HAMR is only intended to impact the highest capacity drives including Near Line and Enterprise.  The hope for Seagate is the number of heads and discs per drive can be reduced, using fewer of the more expensive HAMR Recording heads and media.  HAMR is a more expensive per disc and head technology that will nearly double the areal density.  So instead of 6-7 disc 16TB- 20TB PMR drives, a 4 disc HAMR drive will achieve 2oTB initially.  Laptops, Desktops and other smaller capacity requirement systems don’t need, and won’t use that muck memory.  So again those lower capacity drives will stay on the PMR Technology.

Platinum compositions in HAMR do increase.  Overall Platinum on HAMR drives should be 1.7x more than PMR.  Below is the modeled Platinum HDD Industry Pool Size, Consumption and Net Purchases.

From 2018 through 2028 (11 years), HAMR is expected to reduce Ru Net Purchases by 282 koz.  Since the HDD industry is already in a mode of consuming down its pool account positions, this is indeed a fairly small impact.
 
For the same time interval, HAMR is expected to increase Pt Net Purchases by 34 koz.
 
 
 Could there be one more HDD Technology Turn?
 
The short answer is no.
 
For many years, the technology roadmap has shown beyond HAMR a transition to BPMR (Bit Patterned Magnetic Recording), where the grains or columns of platinum are produced with Litho etch processes.  Beyond that HDMR (Heat-Dot Magnetic Recording), or Head Assisted Bit Patterned Media.   Neither Seagate nor Western Digital are staging significant R&D resources for this very expensive and process/factory altering technology transition.  It appears to most outsiders that the SSD encroachment on HDD is to immediate of a risk to warrant huge R&D and Capital Expense to a very dramatic technology change, even if it worked.

 


Matt Watson can be reached at
PreciousMetalsCommodityManagment.com
MattWatson@PreciousMetalsCommodityManagment.com
1694 Cairo Street, Livermore CA, 94550 USA

The regional scope of these vehicle emissions standards have grown both geographically, and to ever tightening specifications ever since.  Most recently, China has adopted widespread significant standards on par with the most stringent global standards of those used today in Europe.  India is working to tighten its standards too, in an attempt to combat some of the world’s worst air pollution surrounding its population centers.

Hybrid Vehicles

50-55 MPG for a Toyota Prius Hybrid sells itself.  The economics of paying a modest three thousand dollar adder in the up-front price of the car can easily be offset with lower gas prices, especially in expensive gas regions like the EU ($1.52/liter or $5.74 USD/gallon average) and California ($3.65/gallon). 

It all sounds great for emissions … but wait.  It ends up there are unique complexities with a hybrid vehicles emissions.  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 car makers shows hybrid’s PGM loadings 10% higher than a conventional vehicle.

The Hybrid revolution is upon us.  Again, economically, these vehicles sell themselves in lower operating costs, especially in higher gasoline regions of the world.

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.

Long Term Vehicle Global Demand Forecast – Discussion points

1. 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 that I have seen range between the peak being 2027 to as late as 2032.  The amount of the increase over 2018 ranges from 7%-10% additional.
 
2. BEV penetration is coming:  China is leading now in BEV sales.  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.  This fact is gaining more traction in multiple forums.  Also the impacts to the power grid on not trivial.  Power Charging station infrastructure and the global power grid are others topic than needs to be developed to have this conversation.  Being a metals guy, conflict minerals, specifically Cobalt
 
3. Global Vehicle Saturation:  In 2018, there are some 1.4 billion vehicles on the road globally.  According to this trajectory shown in the table it grows to 2.4 billion.  How many vehicles is enough?  Vehicle saturation metrics by region show plenty of room for growth in sales, especially in China, S.E. Asia, Russia/Eastern Europe and of course India.  How many vehicles represents saturation in each of these markets with varying infrastructure.  But really the key in my opinion is the discussion of a Shared Economy.  In the USA when I was a young man, I got my driver’s license at 16 years and 1 day.  Kids today don’t even care about getting their license.  They are far more prone to use Uber or Lift of some other shared service.  This is the generational dynamic of the youth of the world will ultimately change this total vehicle ownership model and the corresponding demand trajectory beyond 2030.

4. Fuel Cell Vehicle Penetration Limits:  There is not enough platinum in the world to go too big on LDV.   In my analysis, we need it instead for heavy duty and hydrogen generation.  Every precious metals analyst in the world agrees that I have talked to.  Penetration rates less than 5% with existing global mine infrastructure.

5. Average Vehicle Age is Growing:  The average vehicle life continues to grow.  This helps reduce new demand, but also delays recycle supply.

6. Regardless of the Zenith in ICE Vehicle Demand, Peak PGM Demand Is Likely Beyond That Point.  Regardless of the vehicle count, the emissions standards are likely to push the demand of PGM’s higher, even as BEV’s take a greater market share.

 
PGM Supply Landscape
 
S. Africa’s Bushveld Complex – Key to Minor PGM’s
Over 75% of Platinum and 80% Rhodium comes from one region, South Africa, where the world’s largest reserves of PGM’s are found.  Only 55% of Palladium comes from S. African with mining growth coming from Russia and N. American where Palladium and some Platinum are a byproduct of Nickel and Chrome mining.  We are exceeding our current mined plus recycled supply of Rhodium and Palladium today.  Above ground stocks including investment populations like ETF’s (Exchange Traded Funds) have been greatly diminished satisfying current demand.

Unfortunately, some of the world’s first/oldest, and deepest PGM mines in S. Africans 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.  The below chart are 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, is that the PGM Minor Metals like rhodium and ruthenium are hardest hit by these declines.  S. African has three different sets of reefs that are rich in PGM.  In the North of S. Africa and extending into neighboring Zimbabwe is the Platreef.  On the Western and Eastern sides of this Bushveld Complex are the UG2 and Merensky Reefs at different depths, one after the other.  It ends up the UG2 Reef has by far the highest composition of PGM Minor Metals.  The Red Stars on the map below are 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 5 years.  So new mines, but in lower PGM Minor rich zones.

The PGM Prices since 2016
 
Rhodium again is used primarily to combat NOX emissions, but it also help with contamination robustness and overall catalytic activity.

 
Palladium is primary element used on Gasoline engines.

Platinum is the primary element used in both light duty and heavy duty diesel vehicles catalysts.

Auto Catalyst – The Dominant Demand Segment

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 Jan 2016. 

Extensive Global Auto Catalyst Recycle Eco-System 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.  Most vehicles today last an average of 15 years.  Very high percentages of vehicle catalytic converter precious metals are collected.   India is lagging a bit in developing these scrap and recycle eco-system since PGM’s and Auto Catalyst use have lagged penetrating the Indian market compared to the US, EU, and Japan.  With more metal, and more complete competitive recycle set of businesses should occur.  

As can been seen in the following charts, the recycle streams have been key to helping meet the ever growing auto catalyst demand for Palladium and Rhodium.  The red line on the right axis expresses the percentage of the metal used just for Auto Catalyst over time.  My message:  Recycle 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. 

Image 1:  Left:  Picture of scrap catalytic converters, collected in vehicle scrap yards.
Right:  Image of honeycomb substrate that contains a PGM coated catalyst material. 
 
The scrapped Catalytic Converter 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 then final refine taking the compositions to 99.9%+ for reuse. 

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.

Auto Catalyst Demand Forecast

The following illustrates my (Matt’s) modeled 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 modeled, 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 surround 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.  It has been done in years past.  The complexity currently for the larger Auto OEM’s is that the design emission criteria is now so difficult, and the ICE Engineering resource pool is suddenly smaller.  One key complaint from OEM’s is that ICE Engineers are being transferred into BEV and PHEV applications.  So 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.

Three Way Catalyst PGM Market Balance

So as a result of these modeled PGM demands, it auto catalyst and other applications, the forecast market balance for Palladium and Rhodium look as follows

 
Summarizing 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 work arounds 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 macro-economic 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 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.  That is projected to grow to 30% of the mix within 5 years.

7. BEV Penetration is too slow, and has its own global problems. 

• The CO2 footprint in creating these Li-Ion batteries is astonishing.  Li-Ion BEV’s (including fabrication of materials and operating the vehicle) are as dirty as many gasoline vehicles emissions today over their lifetime.
• The lack of a Li-Ion recycle eco-system is leading to a new economic disaster with batteries accumulating in scrap yards. 
• The impacts to high rates of BEV’s to the global power grid are significant.

8. ICE Engine 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. 

• Note that gasoline auto catalyst designs are Palladium rich, where Diesel catalyst are platinum rich.

• 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 ratio’s 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 question if we have that long.  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. Macro-Economic recovery will come, it is just a matter of time.
 
 
Where Do We Go From Here?

Big auto OEM’s do have the ability to influence design loadings to some degree though additional optimization efforts on the ICE alone.  The greater the optimization 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 of course this would add cost to the vehicle.  Current OEM’s are streamlining Engineering resources on the ICE powertrain, in favor on 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 more 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 not large recycle volumes are 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 Optimization.  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.  The next IPMI technical conference will make this a main theme of discussion for the recycle community.

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 will need to take action sooner, especially if the global economy accelerates.