Is Platinum Due For A Fall?

December 28, 2007

Gold, catalytic converters and nanotechnology have major implications for platinum prices.

  • Platinum as an industrial metal
  • Will nanotech make gold an alternative?
  • Will platinum prices plummet?

As of December 9, 2007, platinum, palladium and rhodium were the best metals available for purifying the air through the use of catalytic converters … a fact that plays a huge role in the pricing of those metals. While we often associate platinum with wedding bells and Tiffany boxes, the truth is that platinum is actually an industrial metal – more than one-third of all platinum used is put into catalytic converters.

Which is where platinum’s cheaper neighbor, gold, comes in.

Gold shares some – but not all – of the pollution cleansing benefits of platinum. And with gold prices substantially lower than platinum, more and more people have been looking for ways to swap out platinum for gold.

On December 10, the World Gold Council – which is always looking for ways to boost demand for gold – announced a partnership with a U.S.-based company called Nanostellar to use nanotechnology to create a gold alloy that will allow gold to edge into the catalytic converter market. In fact, Nanostellar says that its new alloy can reduce emissions up to 40 percent more than pure platinum catalysts … for a lower cost.

Should platinum investors worry?

What Is A Catalytic Converter?

Think of catalytic converters as fairy godmothers, but instead of turning rats into coachmen, they turn nasty-smelling hydrocarbons, poisonous carbon monoxide and oxides of nitrogen (which contribute to smog) into the thoroughly less-offensive carbon dioxide, nitrogen and water vapor.

They’re even more miraculous with diesel exhaust, converting 90 percent of hydrocarbons and carbon monoxide and 30 to 40 percent of deadly particulates (which can lodge in your lungs and cause cancer) into harmless carbon dioxide and water vapor.

Since 1975 in the U.S., and building gradually through China in 2000, countries have passed clean-air laws which require vehicles of all sorts to install catalytic converters. Today, globally, more than 85 percent of new vehicles make their entrance on the market wearing catalytic converters.

The way it works is simple: An auto catalyst is cylindrical in shape and contains a fine honeycomb structure formed of ceramic or metal. Platinum or a blend of platinum and palladium is coated onto the honeycomb. The parts are assembled and inserted into a stainless steel canister, which then becomes the catalytic converter, which is placed between the engine and the muffler. As the bad stuff flows past the pricy platinum, a reaction oxidizes the nasty materials and … poof! … turns into less-bad stuff.

The rising price of platinum has lit the whole auto industry with the desire to find an alternative, which is where the gold approach gets interesting. On December 21 (2007), futures contracts in gold settled at $811.60 per troy oz., while platinum futures for January (2008) settled at $1536.30 per troy oz. Johnson Matthey, a leading London-based specialty chemicals company and producer of auto catalysts, which also sells the metals, forecasts the demand for platinum will rise to 6.925 million troy ounces this year (2007), according to Platinum Today, Matthey’s Web publication. Availability problems may force the price up even as this demand increases. “Global platinum supplies, at 6.66 million oz., will be lower than in 2006 by 135,000 oz.” They predict that the platinum market in 2007 will actually end up short 265,000 oz., which should put more upward pressure on the price.

Nanostellar’s new gold alloy approach combines gold, platinum and palladium in an attempt to make gold a viable option.

“Gold is a good oxidation catalyst at room temperature, but its activity is reduced at higher temperatures and by exposure to traces of sulphur (sulphuric acid) in diesel fuel,” says Jeremy Coombes, general manager at Johnson Matthey. Coombes says this is likely why Nanostellar announced that their catalyst uses gold alongside traditional platinum and palladium metals. “At this stage it is not clear whether Nanostellar’s experimental catalyst will meet the demanding performance and durability requirements of today’s emission control laws.”

Nanostellar’s chief executive, Pankaj Dhingra, claims the company’s tests show that its gold alloy, called NS Gold, reduces carbon monoxide and hydrocarbon emissions in diesel engines by up to 40 percent more than pure platinum catalysts. Dhingra also said its use as an auto catalyst “could lead to an increase in industry demand for gold, which in 2006 totaled 16.1 million ounces (458 tons).”

James Burton, the chief executive of the World Gold Council, said the council is delighted to play its part in helping to bring the first gold-containing auto catalyst products to the market.

If it pans out, that could crimp demand for platinum and lead to a drop in prices. That shift is at least a few years out, however, and right now the idea of using gold in catalytic converters is more a hope than a reality. Still, it’s a hope that bears watching.

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