By Ivan Y.
Currently, industrial demand for platinum (NYSEARCA:PPLT) primarily comes from the auto industry's usage of it in catalytic converters to reduce toxic emissions in traditional gasoline or diesel-powered vehicles. About 40% of supply is used in these catalytic converters and another 30-40% is used in jewelry. Aside from traditional catalytic converters, a new source of demand for platinum will come from vehicles powered by hydrogen fuel cells. Platinum is a necessary component in hydrogen fuel cells because of its use as a catalyst in splitting hydrogen fuel cells into ions and electrons.
"Platinum and platinum alloys are the most efficient catalysts for speeding up chemical reactions in hydrogen fuel cells. Platinum is the only metal that can withstand the acidic conditions inside such a cell, but it is expensive, and this has limited the broad, large-scale applications of fuel cells." MIT Technology Review
The advantage of fuel cell vehicles is that they produce no toxic emissions. Energy is created from the reaction between hydrogen and oxygen when forming water. The only output from the vehicle would be water vapors. With governments around the world enacting strict laws to reduce emissions, it's easy to see why they would want more fuel cell vehicles on the road, and more gasoline-powered vehicles off the road.
Hydrogen fuel cell vehicles are just beginning to be unveiled to the world and the world's largest automakers all plan to be involved in producing fuel cell vehicles in the next several years. Actually, Honda's FCX Clarity hydrogen vehicle has been around since 2008 but they have only been available for lease in extremely limited quantities in the U.S. (only about 200 vehicles total). In June of this year, Hyundai (OTC:HYMTF) rolled out their Korean-built Tucson Fuel Cell model to American consumers beginning in California. Though it is not available for purchase, it is available for lease for $499 a month. Next will be Toyota's (NYSE:TM) fuel cell vehicle which will be available to consumers in 2015. The retail price for the Toyota model has been suggested to be around $50,000. Also in 2015, Honda (NYSE:HMC) will be rolling out its new hydrogen Clarity model to update the older version. In 2017, Daimler is also expected to roll out their own fuel cell vehicle.
How much platinum will be needed for these hydrogen vehicles? Earlier prototypes of fuel cell vehicles required over 100 grams of platinum per vehicle, but Toyota's vehicle has been stated to use only around 31 grams of platinum. 31 grams is equivalent to almost exactly 1 troy ounce. Today's platinum price is about $1,475 per ounce. One ounce of platinum per vehicle may not sound like that much, but consider that total refined platinum supply this year is expected to be only 6.5 million ounces according to CPM Group. Also consider that a traditional auto catalyst on average contains only about 4 grams of platinum (or palladium) per vehicle. Therefore, we are looking at almost an 8x increase in platinum demand per vehicle.
In the future, however, it is likely that scientific advances will make it possible to use less platinum in manufacturing fuel cells, and that will lead to less demand for platinum. Toyota has already taken it down from about 100 grams to 31 grams, so it's a strong likelihood that scientists can find a way to use even less going forward.
The introduction of fuel cell vehicles is a new source of demand for platinum. Fuel cell vehicles are just beginning to be commercialized and will become more mainstream in the years to come. In order to become mainstream, hydrogen vehicles will need to overcome the challenge from electric vehicles in the alternative category for vehicles. Electric cars also produce zero toxic emissions, but hydrogen vehicles have several advantages over electric vehicles. First, they can go farther on a full tank of hydrogen than an electric car after a full recharge. Honda estimates that the current Clarity model can go up to 240 miles. Second, filling a tank with hydrogen takes minutes compared to recharging an electric car which takes hours. Third, while electric vehicles themselves don't produce toxic emissions, fossil fuels such as coal and natural gas may be burned in the process of supplying the extra electric power to charge these vehicles. On the downside for hydrogen vehicles, necessary infrastructure such as hydrogen refueling stations must be built within reach of consumers. Currently, California only has about 9 public refueling stations with several dozen more in the planning or construction stage. This is certainly not enough. And the infrastructure in the other 49 states is significantly less developed than in CA. Despite a few advantages, due to this significant infrastructure issue, hydrogen vehicles are unlikely to become more popular than electric vehicles in my opinion. Electricity is abundant (at least in the Western world) and it is too easy to recharge an electric vehicle by simply plugging it in.
However, as we see with gasoline and diesel vehicles today and in the past few decades, one technology will not take 100% of the market share, which leaves an opportunity for hydrogen vehicles to take a slice of the pie. And a slice of the pie is all it takes to increase platinum demand.
Disclosure: The author is long SPPP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.