Big increase in China auto sales underpins strength in platinum
Some positive effects of European auto sales stimulus programmes, some signs of optimism in the US and a big surge in the Chinese auto sector could be positive for pgms.
Author: Rhona O'Connell
Posted: Wednesday , 10 Jun 2009
LONDON -
mineweb.net
The Chinese automotive industry registered strong growth again in May and for the first five months of the year total sales of light and heavy vehicles are up by 14%. With Europe and North America still struggling (but with light at the end of the tunnel), the Chinese market remains the world's largest, although local analysts are concerned that the rate of increase is slowing and that when incentives stop, so will the industry's rapid expansion. Europe and North America may hold the key to the second half of this year.
The news about the auto industry is currently revolving not only about the bankruptcy proceedings in the United States, but also about the fact that other government stimuli are proving important support, and also, by definition, that the markets are somewhat concerned about the impact when they are lifted.
In Europe, stimuli appear to be working very well in Germany, are also effective in France and things are looking promising in the UK while the programme in Spain was only introduced last month. Car sales in Germany in May were up by 40% year-on-year and in France the gain was 12%. In Europe as whole, the declining trend in passenger car registration is slowing and in April the annual fall was just 7%, compared with 25% as recently as January. For the first four months of the year, European car registrations were down by 11% against year-ago levels.
These programmes involve incentives for existing car owners to return their vehicles and replace them with smaller, more efficient vehicles, while the Chinese programme is geared more closely to increasing outright sales.
The measures in China form part of the government's overall fiscal stimulus programme and is designed to produce an average 10% per annum growth in production and sales over the period 2009 -2011. The emphasis is towards vehicles with smaller engines, with a target that vehicles of up to 1.5 litres will have a 40% market share by 2011, with a 15% market share accruing to vehicles with engine capacity of less than one litre. To this end the government has halved sales tax on small cars and it is also offering vehicle subsidies in rural areas.
This programme, put in place in February, has given the domestic market strong support. Sales figures in March to May were 47% higher than they were in the previous three month period, although the gain over the equivalent period of 2008 was a "mere" 20%. The country has taken up pole position in the global industry, with car sales in the first quarter of this year outstripping those in the US by more than 20%.
Car sales in the US in the first five months of the year are still down dramatically and at present there is little sign of much improvement. Sales in May were down by 39% against May 2008, while for the first five months overall they dropped by 37%. The state of the US industry is well documented with the bankruptcy of General Motors and Chrysler and the knock-on effect into the supporting industries with thousands of dealerships under threat. There is a degree of optimism about the process however, with the Administration of the belief that the GM bankruptcy proceedings could be completed within 60 and 90 days from the start of June and Chrysler already emerging from its traumas despite a last-minute hiccup while the Supreme Court debated - and decided against - allowing appeals from some debt-holders against the proposed sale of most of Chrysler's assets to Fiat.
The other light on the horizon in the US industry is the passage through the House of Representatives on 9th June of the "cash-for-clunkers" bill, which would operate in a similar way to the provisions in place in Europe and which are, so far, having such a positive effect on those domestic industries. In the US, the cash for clunkers programme would allow consumers a tax credit of up to $4,500 for changing out their heavier, thirsty cars for smaller, more fuel-efficient models. It is the anticipation of the passage of this Bill that has delayed what could be a considerable number of would-be purchasers from entering the market and it is arguable, therefore, that once the Bill completes its passage through Congress it could unleash (all other things being equal in terms of available income and financing, of course) pent-up demand.
Similar legislation now goes before the Senate, but the passage of the Bill may yet meet opposition to the effect that it is not green enough., Under the legislation that has passed the House, car owners that switch to a vehicle that is four mph more efficient than their current car would receive a tax credit of $3,500, while the full $4,500 would only be available for cars that are 10 mpg more efficient. While the Bill before the Senate is similar to that which has gone through the House, there is an alternative proposal being put forward that suggests that for the full $4,500 credit, the improvement should be 13 mpg or better.
The expectation is that the legislation will be passed in more or less its current form.
The implications of all these shifts in the auto industry are mixed as far as platinum is concerned. In the short term, China continues to absorb vast quantities of metal, with imports so far this year running some 40% higher than in the first for months of 2008. In the US, demand has obviously been tailed off, but if the expected rebound in the sector does develop then there could be a sharp snap upwards and the question then is the extent to which he industry is furnished with inventory. This, though, will be partially offset in the medium term by the return of old vehicles and the associated recovery of platinum (and palladium and rhodium) loadings from the scrapped catalysts.
In 2008 the automotive sector consumed approximately 119 tonnes of platinum and regenerated 31 tonnes of scrapped material (GFMS figures). On a net basis, therefore, it was responsible for approximately 41% of global platinum demand last year. Because of its high diesel penetration Europe was possible for more than 55% of net platinum demand and in the US, platinum demand was actually negative because of reduced gross demand and steady scrap supply. Developments in the second half of this year will be important. Chinese demand is likely to remain reasonably robust, but shifting forces in European North America will also be key to the market's dynamics. |
