A resurgence in encouraging vehicle buyers to buy diesel vehicles could result in a boost for platinum demand, says the World Platinum Investment Council (WPIC).
In January 2021, the European Commission will measure the average fleet carbon dioxide (CO2) emissions of each European automotive manufacturer against the 95 g/km level for 2020.
Following this, the commission will levy heavy fines for manufacturers whose vehicles exceed the stipulated emissions.
The WPIC points out that fleet CO2 emissions declined steadily from 2009, but Dieselgate in 2015 reversed that trend as consumers chose to buy higher CO2-emitting gasoline cars.
This was compounded more recently by the sharp increase in large-engine sports utility vehicle share (38% in 2019) and slow growth in battery electric vehicle share (2% in 2019).
In terms of trends in 2021, the WPIC says that, if the 2019 excess emissions’ of Europe’s top 13 automotive manufacturers, of 26 g/km, remains unchanged this year, automotive manufacturers face fines of about €27-billion.
These will be payable in 2021 even after adjusting for the lower Covid-19-impacted 2020 sales volumes.
The WPIC says original-equipment manufacturers will be liable for fines yearly while their fleet emissions remain above the European Union (EU) mandated level.
Avoiding or reducing these heavy yearly fines is a very strong incentive for automotive manufacturers to sell more diesel cars, most particularly mild-hybrid diesels.
The incentive increases further for the period from 2025 to 2030 as CO2/km targets fall by 15% and 37.5% respectively compared with current levels.
“Increasing sales of mild-hybrid electric vehicles (MHEV) gasoline and diesel models, including plug-in electric vehicles (PHEV) is a very cost-effective way for automakers to avoid imminent fines and reduce future yearly fines,” states the WPIC.
Further, the organisation notes that automotive manufacturers and regulators “appear to agree” on taking bold steps to further accelerate MHEV (including diesel) sales, which has been the highest selling segment in the UK this year.
Exactly five years after Dieselgate, the WPIC says diesel MHEVs are central to automotive manufacturers' CO2-reduction strategies and are compatible with renewable fuels.
“Importantly, on September 16, the EU Parliament voted to end the use of diesel real-driving emissions conformity factors by 2022 – essential to unravel diesel’s negative perceptions and support diesel sales growth,” states the WPIC.
As such, the organisation suggests that public criticism (and automotive manufacturer production) of PHEVs (CO2 less than 50 g/km) should decline as super credits (double- counted in fleet) fall from 2 this year to 1.33 in 2022.
Meanwhile, the WPIC says this year, rapid growth in mild-hybrid diesel sales has helped stabilise the EU diesel market share at 30%, stemming a five-year decline, with the current actual sales trajectory pointing to more growth.
Higher loadings on new real-driving emissions-compliant diesel-hybrid cars means a 1% increase in market share will add well over 20 000 oz in yearly platinum demand calculated using Johnson Matthey estimates published before real driving emissions.
Further, platinum’s attraction as an investment asset arises from supply being relatively constrained with limited investment in new platinum group metal (PGM) mines and platinum prices nearing all-time lows relative to gold and at record lows relative to palladium.
In addition, investment attractions also arise from total PGM demand growth, which should continue owing to increasingly restrictive emissions rules, as well as market balance and price mismatches between palladium and platinum encouraging substitution.
Investment demand has surged as institutions begin to factor in the low price and positive fundamental outlook.