Western Europe remains the largest market for diesel passenger vehicles in the world, despite a decline in diesel market share over the past few years. The region accounts for 30% of global autocatalyst platinum demand (approximately 780,000 ounces). In recent years, tightening legislation on emissions from vehicles with both diesel and gasoline engines has led to an increase in the use of platinum group metals (PGMs) in autocatalysts. Euro 6VI is the current European standard that regulates the content of harmful substances in exhaust gases, which applies to all new vehicles from September 2015.
The European Commission will present a new legislative proposal for stricter emission standards, known as Euro 7VII, later this year.
New legislation that industry groups have warned could jeopardize the future of new vehicles powered by internal combustion engines is likely to come into effect as early as 2025. Euro 7 is expected to become the final standard before all vehicles reach zero emissions.
However, the additional positive impact on air quality that Euro 7 can have compared to Euro 6 is limited. The Association of European Automobile Manufacturers (ACEA), together with consultants AERIS, analyzed the impact of the introduction of Euro 6 vehicles on air quality versus the impact that Euro 7 could have in the future. It is estimated that by 2030, Euro 7 will lead to an additional reduction of nitrogen oxide emissions by only 3.4%. In contrast, research has shown that accelerating the replacement of old cars with the latest Euro 6 vehicles, for example by promoting scrappage, will bring 6 to 25 times the benefits in reducing NOx emissions.
Diesel vehicles meeting Euro 6 standards will continue to be an important consumer choice, and the use of PGMs in autocatalysts will be supported as RDE emissions testing progresses to ensure compliance.
The introduction of electric vehicles is already helping to reduce the demand for diesel fuel in Europe, and further tightening of emissions legislation could accelerate this process. However, heavy vehicles are expected to primarily use diesel fuel, supporting long-term platinum demand.
Gold Price and Central Bank Policy
The Federal Reserve is approaching a cut in its QE program. The minutes of the June meeting of the Federal Open Markets Committee, released last week, confirmed the opinion of officials that the cut of the Fed’s $ 120 billion asset purchase program could begin earlier than they expected at previous meetings. While this decision is not inevitable, the likelihood is growing that it will become an obstacle for gold. Most officials also expect higher interest rates in 2023, a year earlier than previously thought.
The central bank has acknowledged the acceleration in inflation, but it still seems to view it as temporary, so gold is forecast to continue to rally until the Fed takes action.
The ECB has raised its inflation target to 2% (from the previous target of just under 2%) and is allowing it to be exceeded if necessary. If inflation remains high and central banks do not act, the price of gold should eventually rise.
Silver and green energy
According to Asia Europe Clean Energy (Solar) Advisory, solar PV capacity in China could surpass 100 GW next year after a potentially weaker-than-expected 2021. High prices for some raw materials used in solar panels have led to some projects being delayed until 2022 or canceled altogether. High prices for polysilicon and tempered glass are forecast to dominate for most of this year. It also recently became known that projects in the solar energy sector, approved in 2019-2020, but which will not be implemented by the end of 2021, will be included in the quota for the next year, and not canceled. The combination of deferred and deferred projects could lead to a dramatic increase in installs in 2022.
While a weaker 2021 could put pressure on silver demand from the PV market, it is expected to be offset by a strong recovery in 2022.
Solar silver consumption last year was 101 Moz (source: The Silver Institute).
The price of silver lagged behind the price of gold again last week. The Fed’s tone has become more hawkish, but monetary policy remains unchanged, while inflation is already high. All of this will drive up the price of silver.
According to the latest report from Platinum Guild International (PGI), piece-weighted pricing and branded collections can help boost demand for platinum jewelery. Retailers in China sell jewelry based on weight and current spot price. Branded products are sold by weight, which helps increase revenue, consumer value, and sales. PGI notes that the possibility of higher margins associated with branded collections has been fundamental to the adoption of platinum in India, one of the largest gold markets where platinum is currently competitive. The platinum jewelry market started the year slowly as Covid-19 restrictions continued to put pressure on key markets. Consumer sentiment is expected to improve in the second half of the year amid growing optimism about vaccines and economic recovery.
Jewelry-related platinum demand is projected to reach about 1.7 million ounces this year, up 11% from the same period last year but below pre-pandemic levels.
The platinum market is under supply and is projected to have a surplus of around 1 million ounces (excluding investment) for the full year. The price of platinum has changed little over the year, and given the large surplus (excluding investment), it may not return to the highs seen earlier this year.