Jim Gallagher - North America palladium20 Jan 2020 19:53
There was a great Northern miner interview with Jim Gallagher of North America Palladium in April last year in which he goes into detail about the palladium supply issues and why platinum can’t easily replace it. Well worth a listen. He then repeated some of the comments in quarterly results, the below being a transcript from some of that call.
Jim Gallagher North American palladium
One of the key items I will address today rather than repeating many of the talking points that we have shared over past calls is the potential for substitution of platinum for palladium. There are several reasons why platinum is not likely to substitute palladium. Over the years, the design of catalytic converters has changed dramatically. They are an order of magnitude more efficient at removing noxious gases than they have been in the past. In this reengineering, palladium has become the predominant metal.
The key feature of palladium is that it performs better under high heat and to achieve the most efficient catalytic reaction, heat is critical. For that reason, modern catalytic converters are designed to be very close to the exhaust site, and the reality is that platinum does not perform as well under high heat loading. It tends to break down, clump up and erode over time. So palladium is a much better product for that application.
It would take a fundamental redesign of the system, moving the catalytic converter further back to allow platinum to be used. And with that lower heat, it would be less effective. Platinum is denser than palladium, requiring a greater weight to achieve the same surface coating inside a catalytic converter, thereby negating much of the potential cost benefit. I think the other key factor to be aware of is that the platinum market is still smaller than the palladium market. Talking about a wholesale change from palladium to platinum, to a smaller market in platinum does not make sense and is really not a solution.
At the end of the day, even at a $2,000 palladium price, we might be looking at a $200 increase in the price of a vehicle. That is not material to the auto companies relative to the significant cost and reputation impact of failing to meet emission standards. Recent headlines include a potential lawsuit for Ford for not meeting its emission standards and a 1 million vehicle recall by Fiat Chrysler in the United States because they aren't meeting their standards. Those are headlines and issues that auto companies do not want to deal with, so there is virtually no desire to substitute at this point in time.
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