Fri, 25 Oct 15:43:00 GMT
* Substitution of platinum for palladium 'may reverse'
* Prices set to take support from demand recovery next year
* Euro VI coming into force for new models in Sept 2014
By Jan Harvey
LONDON, Oct 25 (Reuters) - Demand for platinum may pick up next year when new European auto emission rules are likely to reverse a trend toward replacing it with cheaper palladium in diesel autocatalysts, a Johnson Matthew senior researcher said.
The auto industry is the largest single source of demand for platinum, but that market has come under pressure since the start of the financial crisis, which put consumers off buying new cars.
In addition, carmakers have been working for years towards substituting platinum in autocatalysts with cheaper metals, chiefly palladium, particularly after platinum hit record highs in 2008 of more than $2,000 per ounce.
"The gradual encroachment of palladium into platinum will probably cease and possibly reverse when Euro VI comes in," Peter Duncan, general manger for research at the catalyst manufacturer said on Friday.
Euro VI vehicle emission regulations, aimed at cutting nitrous oxide emissions, come into force for new models in September next year.
The regulations mean that carmakers will have to adopt one of two possible new technologies - a trap that chemically binds nitrous oxides or a selective catalytic reduction (SCR) filter, which reduces nitrous oxide levels using ammonia.
SCR filters, typically used in larger vehicles, necessitate the use of platinum to catalyse nitric oxide into nitrogen dioxide before emissions reach the filter itself.
"That is probably going to halt palladium's encroachment in the catalyst system and favour platinum again," Duncan said.
GRAPHIC-2013 commod returns: http://link.reuters.com/reb25t
GRAPHIC-Plat/palladium ratio: http://link.reuters.com/qub87s
THREATS TO SUPPLY
Platinum offtake for use in emissions control catalysts fell by around a quarter from 2007 to 2012, while the sector's palladium demand rose by nearly half. Platinum has been entirely phased out of three-way catalysts, which now contain only palladium and rhodium.
"Catalyst makers have substituted platinum with palladium in gasoline catalysts already in most cases. With diesel engines, platinum is still the predominant catalyst, although palladium has gradually been replacing it," Duncan said.
Dwindling demand from the auto sector has meant platinum prices have gradually ground lower over the past two years, despite threats to supply from major platinum producer South Africa, the source of three out of four ounces of the metal.
Mining companies there have struggled to maintain production due to a toxic mix of rising costs, falling prices and labour unrest. The situation turned deadly last year, when 10 people were killed in a union turf war, and police shot dead 34 striking miners at Lonmin's Marikana mine.
Threats to South African supply were the major factor driving prices to a record $2,290 an ounce in 2008, but a demand shortfall has meant supply issues have had little impact since. The metal is currently at $1,440 an ounce, down 6 percent this year.
"Platinum demand has softened because the European diesel market has been weak for a while," Duncan said. "But when Euro VI impacts and vehicle production starts to rise, you'll have a double whammy. The platinum story should reverse."
"When that story changes, one would expect that people's view of price would change as well," he said. "In the end, fundamentals do matter, so when people see that demand starting to take effect, I'd expect it to have an effect on the price."
(Reporting by Jan Harvey; Editing by Veronica Brown and Jane Baird)