Global palladium demand in autos to hit record in 2016: CPM

NEW YORK (Reuters) - Global demand for palladium in automobiles will rise nearly 3 percent to a record in 2016 on growing Chinese demand for small cars and as lower oil prices have spurred U.S. sales of light trucks, CPM Group said on Tuesday.

A machine engraves information on an ingot of 99.97 percent pure palladium at the Krastsvetmet nonferrous metal plant in Krasnoyarsk, Siberia, September 30, 2014. REUTERS/Ilya Naymushin

But demand for platinum in automobiles will be flat, the market research firm said in a report.

“There are massive shifts beginning to emerge in both the supply of and demand for platinum and palladium,” CPM said in its Platinum Group Metals Yearbook 2016.

“Automotive use of platinum and palladium is changing, shifting away from platinum toward more palladium and toward non-Platinum Group Metals (PGM) using technologies.”

Platinum is used to reduce emissions in diesel-powered engines whereas palladium is used in gasoline-powered engines. The larger the engine, the more platinum or palladium is required to cut emissions.

“The Volkswagen diesel vehicle emissions scandal revealed in September 2015 fortified the negative sentiment toward diesel passenger vehicles in Europe,” CPM said.

Volkswagen VOWG_p.DE admitted that it had falsified U.S. vehicle emission tests in the largest scandal in its 78-year history.

“The fundamentals for palladium are positive, but the positive fundamentals are for the most part already factored into the metal’s price,” CPM said.

While palladium fabrication demand was expected to grow at a slower pace in 2016, it was forecast to rise to 9.4 million ounce, up 1.7 percent from a record in 2015. In automobiles, it was seen rising to 6.3 million ounces, up 2.9 percent from 2015, with gains in North America, Japan, Western Europe and China.

Auto sales in China are expected to rise in 2016 due to tax breaks for buyers of small cars, the report said. These will, however, use less palladium than larger cars.

CPM pegged platinum use in automobiles at 3.14 million ounces in 2016, unchanged from 2015. While small decreases are expected in the United States, Japan and China, Europe will see a rise due to tightening emission standards and healthy demand for commercial and passenger vehicles, CPM said.

“The ongoing reduction in market share of diesel vehicles is expected to weigh on demand, but at least during 2016 the increase in commercial vehicle sales and tightening of emissions standards are expected to offset losses in demand due to this reduction in diesel passenger vehicle market share.”

Platinum demand for auto catalysts in Europe is projected to reach a five-year high of 1.14 million ounces.

Reporting by Marcy Nicholson; Editing by Richard Chang