It is fuel-cell-vehicle (FCV) season again as many of the world’s premier car makers make their annual ritual announcement that they are ‘studying’ or putting into ‘limited production’ passenger-carrying vehicles for personal use (i.e. cars), propelled by electricity generated by ‘fuel cells.’

Once again, the perception of greeniosity is meant to trick us into thinking that the fundamental laws of economics have been suspended.

As far as I can determine, the electricity for FCVs will be generated when diatomic hydrogen molecules are split into hydrogen ions and free electrons, by the action of passing the hydrogen over a catalyst. This previous sentence is totally intelligible to a chemical engineer with the only undefined word in it being ‘catalyst.’

As far as I know the only such ‘practical’ catalysts known for such a reaction are the platinum-group metals (PGMs), primarily the metal palladium (Pd). There has been a lot of research over the last 20 years on trying to produce a fuel-cell chemistry based on a more readily available catalyst than a PGM but the results have not been economical. One such program backed by no less than Kleiner Perkins is for a Solid Oxide Fuel Cell (SOFC), which uses the extremely scarce rare-earth-element (REE) related metal scandium (Sc) in its catalyst.

The thing that all current fuel-cell technologies have in common, is that they rely for their operation on large amounts of very scarce materials such as PGMs or Sc, as in the discussion above.

There is another problem, the relative value to achieving the goal of reducing carbon emissions of a FCVm versus an internal combustion engine (ICE) vehicle, using a catalytic converter. This is the real issue of the most efficient use of strategic metals. Let’s say that a Pd-based fuel cell would use at least one ounce of Pd in order to be able to produce enough electricity to power a four-passenger car. That same amount of Pd could be used to manufacture 100 exhaust-emission catalytic converters, for hydrocarbon-fueled ICE-powered vehicles! Note well, that new global production of Pd is in the 200 tons per year range. This is twice what it was 10 years ago, but nearly impossible to increase as most of the world’s new Pd comes from its production as a byproduct of nickel mining in Russia and Canada, with a little more coming from South African platinum mining. North America produces some 10% in total of the world’s annual new Pd. It is difficult to see how green technologists could ask us to depend on either Russia or South Africa for an ‘assured supply’ of anything much less for an increased supply.

So, the best solution for constructing fuel cells is not to use environmentally precious Pd or any other PGM in such a horribly wasteful way. Unfortunately, the best SOFC, based on Sc, is an even worse solution. There simply is not enough Sc produced in the world. Currently just a few tons a year are produced, so it is believed, in the former Soviet Union.

So we can either rob Peter or mine an empty bank vault.

There is a real analogy here to the REE supply issue now facing the world, and even an interface, since Sc is only likely ever to be produced as a byproduct of REE production (which itself is ironically usually produced as a byproduct of iron mining).

PGMs used in automotive-exhaust emission control devices (catalytic converters) are so scarce as to be among the most recycled materials on the planet. In relative-percentage-recycled terms they are right up there with iron, copper, aluminum, lead, and gold. But it is in absolute terms that the comparison fails. An excellent example of this is the PGM rhodium (Rh), used to eliminate acid-forming nitrogen oxides from automotive ICE exhaust. The world production of new Rh as a byproduct of South African platinum production is 30 tons a year. Yet the apparent demand from the global OEM automotive industry is nearly 50 tons per year. This additional material must come from the extensive recycling of catalytic converters.

It is the same type of thing with the REEs with a notable exception geographically. In China extensive recycling of REE industrial process waste as well as of end-of-life waste, is one of three things that keeps the supply of the key heavy REEs terbium and dysprosium, nearly equal to the demand. The others are illegal production within China and purchase of heavy REE ore concentrates from outside of China. The three processes together provide a doubling of ‘official’ production of these key REEs.

Only now in 2014 is there even the beginning of a non-Chinese REE recycling industry. This is because with just one exception, there is no REE separation plant outside of China with the capability/capacity to separate the heavy REEs from ore concentrates or scrap; there are 38 such facilities in China.

What little Sc is produced in the world may be augmented by the three processes above, but officially there is no verifiable Sc production anywhere. So, if there is to be a fuel-cell-powered OEM automotive power-train revolution, it will have to be itself driven by a fuel-cell technology that as of now is unproven, and does not involve a need for large quantities of either PGMs or Sc.

At the moment, supplies of PGMs and Sc globally are either insufficient or unavailable. Thus fuel-cell-powered vehicles will be curiosities, or the toys of the elites, for the foreseeable future.

The exhaust from internal combustion engines using hydrocarbon fuels is cleaned by catalytic converters using the properties of platinum, palladium, and rhodium. China is now the largest producer of motor vehicles of any one country; it has almost certainly already surpassed the United States for that title permanently. In 2009, China produced 13.5 million motor vehicles; it is predicted that this production rate will reach 18 million per annum by 2015; and 21 million per annum in 2020.

The misconception by the political and financial classes in the West, that the era of the internal combustion engine is coming to a close, is causing a lack of interest by them in the need for increased production of platinum and rhodium, the platinum group metals critically needed to manage the exhaust emissions of internal combustion engines.

There will be no sudden conversion of the world’s growing fleet of motor vehicles – now standing at 750 million – to electrified propulsion. Even the most sanguine estimates put the total percentage of electrified vehicles produced per year at no more than 10% during the next decade and no more than 20% by 2030.

This means that of the minimum 2 billion motor vehicles produced over the next 20 years, only 400 million of them, at most, will be electrified with little or no exhaust to manage.

What of the 1.6 billion built with internal combustion engines?

The world’s 2009 production of platinum and rhodium was almost entirely from southern Africa; the global total comprised 200 metric tonnes of platinum and 30 metric tonnes of rhodium, which was produced ONLY as a byproduct of new platinum production.

The production of the platinum group metals in Africa has doubled in the last 10 years and has barely kept up with automotive demand. If it were not for intensive recycling there would now already not be sufficient platinum and rhodium for automotive use.

China is taking the long view and investing wisely in platinum group metals production in southern Africa, because there is no way that platinum group metals production can be increased enough to supply even a doubling of the world’s standing fleet of motor vehicles powered by internal combustion engines.

The increasing cost of owning and operating a motor vehicle everywhere will surely mandate a much longer service life for such vehicles. This will tie up supplies of the platinum group metals for longer periods and thus squeeze the supply of them from recycling.

There will come a time in the next decade therefore when first rhodium and then platinum go into short supply with a concomitant rise in prices; in fact this is already starting.

I have purposely left palladium out of this discussion, because I am speaking of southern Africa, and it is Russia and Canada that produce the world’s palladium.

I’ve just completed the finishing touches to a new report that I’ve written for subscribers to The Jack Lifton Report.

In December 2009, I was invited to New York’s Essex House by CLSA, one of Asia’s leading independent brokerage and investment groups, to present a short seminar on “Rare Metals in the Age of Technology” to CLSA University, an ongoing executive education program that CLSA produces for its clients.

The seminar focused on discussion of the rare metals, and the issues and challenges facing their supply and production rates. I also presented a set of tables detailing production rates of a wide range of metals, to illustrate some key points on the subject.

The seminar answered three fundamental questions relating to the business of the technology metals:

1. How are metals produced, which is to say, where do the metals we can use actually come from?
2. What quantities of new metals are produced each year, and can the production rates of any or all of them now be increased beyond 2008 levels, or can or will the production rates for some of them actually decrease?
3. How does the location of the production sites for any and all metals factor into their availability, if at all?

A free 10 page PDF copy of the new report based on this seminar, is now available exclusively to subscribers of The Jack Lifton Report.  Just fill out the simple form in the upper right of this Web page and you’ll have the report in minutes.

A note to existing subscribers – if you took a look at the report prior to 6:15 PM EST today, then you’ll want to download a slightly updated version which was missing some minor data in the tables. It can accessed with the same URL and password that you received already.

General Motors has recently come under criticism for petitioning the bankruptcy court to break its contract with Stillwater Mining Company, located in Stillwater, Montana.

The USA does not produce, nor does it have, sufficient resources of any of the platinum group metals (PGMs) to meet the demands of the American domestic OEM automotive industry for catalytic converters.  These catalytic converters must, by law, be fitted on any vehicle or device utilizing an internal combustion engine fueled by hydrocarbons, if the emissions from the operation of that device exceed a legally defined minimum.

The only domestic producer of the metals palladium and rhodium is the Stillwater Mining Company, owned by the Russian nickel and palladium producing giant, Norilsk, the world’s largest producer of palladium. Stillwater’s contribution to the total production of palladium by Norilsk is insignificant. However, because of the connection with Norilsk, Stillwater can uniquely, for an American company, offer any American customer all of its needs of palladium no matter what the quantity required.

Thus Stillwater was able to extract from General Motors a “floor price.” This means that in return for Stillwater guaranteeing the delivery of any quantity, General Motors agrees always to pay a minimum floor price even if the market price is below the floor price.

Even 9 months ago when this agreement was entered into it looked like a win-win.

Today with the unprecedented fall of PGM prices, the largest percentage drop in the period of time considered in history, the floor price has backfired on GM. The company would have to pay far above market price for its critical PGMs, metal without which it cannot legally sell a car.

But even though the bankruptcy of GM lets it back out of an otherwise unbreakable deal, Stillwater’s complaint that GM shouldn’t be allowed to do so, because it means that taxpayer funds will go to a foreign supplier, is hypocritical.

Stillwater’s domestic production of palladium and rhodium could never have satisfied GM’s needs if 2008 sales had turned out as predicted, and most of GM’s supply of rhodium, for example, would have come from AngloAmerican’s operations in Southern Africa along with most of GM’s platinum needs. Although Stillwater could have supplied all of GM’s needs for palladium, it could only have done so by importing palladium from its Russian parent.

It would have been Stillwater that was physically outsourcing palladium, not GM, although GM would have had to be completely aware of this from the beginning. It was, after all, why buying palladium from Stillwater was an attractive proposition; it eliminated any risk of interruption of supply of a critical raw material.

Globalization has brought us to the point where an American wholly-owned subsidiary of a Russian company, is saying that it is unfair to allow an American company to break a contract with it, because the result will be that the American company must buy its supplies from a Canadian or African supplier, both of which, in turn, are owned and operated by either a British or British-Australian owned and operated company (i.e. AngloAmerican, Rio Tinto, or BHP Biliton)

Only one thing is certain. The American taxpayer loses in every case.

If politicians simply required that all OEM automotive scrap containing recoverable PGMs be processed in the USA, and the metal values obtained be sold only to American OEM end users, then the only PGMs that would need to be bought would soon be small enough to be supplied from Stillwater’s domestic production in the case of palladium and rhodium, and possibly from Canadian domestic production in the case of platinum.

Why this isn’t done is a political mystery to me. Perhaps it is just ignorance on the part of those who should know better.

The ability of analytical chemists to detect low levels of metals in water, has gone far beyond the ability of environmentalists to exercise common sense and good judgement.

The author of a recent article in Nature states that modern Arctic ice contains up to 120 times more osmium, or platinum group metals (PMGs), than 7,000 year old ice.

I do not believe that 0.00000000000000020 grams of anything per gram of water, can be reliably and repeatedly measured as to its actual distribution in a sample space. I suspect that this researcher does not know that the UK’s University of Durham last year published an observation, that parts per million of PMGs were found in the dust on Durham’s streets. Those researchers, equally as clueless in economics as this researcher is in common sense, suggested that the “dust” could be mined to recover the PMGs.

Just for the record it should be noted that almost no osmium is produced for commercial purposes, because those purposes are very few, and osmium is very rare.

It should also be noted that osmium is carried into the earth’s atmosphere by meteorites, and so it cannot be assumed that the “measured’ osmium in the arctic ice even originated on the earth, much less that it got there through human agency.

I wonder how much gold is in that water the researcher measured, and how much of nickel, iron, cobalt, platinum, palladium, rhodium, ruthenium, and iridium there was? The list of elements beginning with nickel are in the composition of many meteorites.

I think that sometimes getting “published” in a prestigious journal like Nature, is more important to young researchers than the content of what they publish. I just wish that Nature would employ some fact checkers with a knowledge of geology and astronomy, as well as of activist environmentalism and climate change.

It is certain that the prices of the critical technology metals, which are required for the manufacturing of the nickel metal hydride batteries for Toyota’s current Hybrid Synergy Drive, will be going up by 2011, as demand for them is predicted to exceed supply sometime in, or soon after, 2011. Toyota can perhaps reduce its cost of these metals by using less in smaller batteries, but with increasing prices that may not work. Perhaps Toyota is going to use its own version of what I am going to now name “Rare Metals Auditing and Conservation” or RAMAC, which in a way will allow a company to lease its own metals from itself. This can stabilize a supply while allowing it to increase whenever possible.

I think that Toyota is in the process of creating an internal revolution in the way it manages its supply and value chains, with regard to sourcing and valuing critical metals, by which I mean those metals without which a component cannot be built.

I am going to explain what I think is Toyota’s version of the RAMAC system as it pertains to the manufacturing of batteries for the electrification of motor vehicles intended for private use and primarily for the carriage of passengers not freight.

Let me, as a preliminary to that give you some background as to how Toyota manages its sourcing and valuing of the platinum group metals necessary for manufacturing its exhaust emission control catalytic converters and its oxygen sensors.

Unlike the United States, Japan has almost no metallic natural resources; it certainly has no domestic supplies of platinum, palladium, or rhodium, which are today produced almost entirely in Southern Africa (platinum, rhodium, and palladium), Russia (palladium and platinum), Canada (palladium), and the USA (palladium).

Unlike the US government, the Japanese government encourages its domestic industries to source and recycle critical raw materials. The Japanese government has a long range plan, itself, to stockpile critical materials for both civilian and military production, so that the situation of 1939 can never repeat itself. At that time, the Japanese war machine was facing a massive interruption in its supplies of steel, oil, and rubber and it informed the (military dominated) government that if it didn’t “acquire” secure supplies of those materials then its ability to make war would begin to decline sharply by late 1941 or early 1942. We all know what types of decisions were motivated by this simple looming shortage.

Today, Japan is again acutely aware of the fact that it must conserve critical resources and stockpile them to maintain the viability of its industrial base, or it could lose the economic struggle now accelerating between Japan and China, Korea, Malaysia, and, soon, India, because those nations are better supplied with critical raw materials. Japan’s industrial innovation is currently world class and certainly at least equal to that of the US, in technologies such as battery development, and production, for the electrification of private passenger carrying vehicles.

The great Japanese trading houses work in conjunction with Japanese industry and with the diplomatic, and soon, stockpile buying, support of the Japanese government to seek out, buy, and process critical materials for industry and the military.

In the case of the platinum group metals the Japanese trading houses such as Sumitomo, Mitsui, and Mitsubishi officially compete with each other internally for ultimate customers, but would never, for only the sake of competitive advantage with regard to one another, prevent one another from acquiring a raw material critical to Japan’s industrial survival.

In the case of the platinum group metals, as a good example, not only are the Japanese trading houses long term buyers of very large quantities, but they are willing to enter into binding offtake agreements to buy large quantities at prices that can be calculated exactly for the long term. This means that the producers can borrow against such contracts as collateral. In the free market this creates a strong incentive for miners to make deals with Japanese trading houses at good prices for both parties, even if they are below market!

Additionally, Japanese trading houses also hedge platinum and palladium and create virtual hedges for non-exchange traded rhodium, for example, by methods such as the offtake agreements discussed above.

Finally the Japanese trading houses own or contract with Japanese and European mining and refining companies to recycle platinum group metals from automotive scrap. The global Japanese car makers such as Toyota, will marshall selected automotive scrap containing critical metals from their own dealers, and consign it to a Japanese full-service trading company such as Sumitomo, which will have the scrap picked up and shipped to Japan for recovery of the critical metals for reprocessing into the appropriate forms for re-use. Typically, companies like Sumitomo offer to do every step of the process, from picking up the scrap to delivering finished components utilizing the recovered critical metals, back to a customer such as Toyota.

In light of the long term and sophisticated planning by Japanese industry, it should not be surprising that Toyota is aggressively fighting back against Honda’s Insight hybrid, which Honda has identified as a Prius fighter, by offering a smaller hybrid to compete directly with the Insight. This has allowed Toyota to create the impression that the Insight is not competing in the Prius market segment, but rather in a segment that Toyota overlooked, very small hybrids. In the meantime before the new Yaris size hybrid can be brought to market, Toyota will continue to make and sell the current generation of Prius even as it introduces a new larger size next generation Prius, which was intended originally as a replacement for the current generation Prius.

I believe that this means that Toyota will continue, not only to extend, but to expand the Prius brand and volumes, while adding a new entry into the hybrid space, a small, purposely designed, hybrid Yaris-size car.

This means that Toyota would need more of the rare earth metals, lanthanum and neodymium, than even Toyota itself thought it would need as well as additional supplies of cobalt and nickel

Let me tell you briefly what Toyota has done up until now to minimize the risk of interruption of its supply of rare earths, cobalt, and nickel for making its nickel-metal hydride batteries for the Hybrid Synergy drive:

First, as with platinum group metals, it has commissioned some of the Japanese trading houses to seek out additional supplies of the required metals.

Nickel today is, and cobalt later in the year will be traded on the London Metal Exchange, which means that contracts guaranteeing the delivery of both metals can be bought with at least two years’ duration.

Japanese trading companies, acting on behalf of clients such as Toyota, seek out spot buys of nickel and cobalt in markets such as today’s, and negotiate and execute offtake when and where feasible taking advantage of and locking in low prices. Copper for wiring harnesses and motor winding is also sourced aggressively and all three metals, nickel, cobalt, and copper are recycled from auto company generated and owned scrap, for the benefit of the car companies as much as possible.

There is no exchange trading of the rare earth metals and there is little if any publicly acknowledged recycling of them. Additionally there is not yet today any reliable volume production of the rare earth metals outside of the People’s Republic of China (PRC), and the PRC is not a good place to enter into an offtake agreement as any such agreement will always be modifiable by decisions of the PRC government with regard to export allocations and taxes.

It is rumored that both Toyota and Honda had or have offtake agreements with the promising non-Chinese rare earth mining and refining operator Lynas, but Lynas is at the moment in limbo, as it has had to suspend operations due to the withdrawal of funding. This has stopped the construction, not only of Lynas mining operations, but also of the very large rare earth refinery Lynas was about to build in Malaysia, which would have been the first constructed, or operating, outside of China since the late 1990s.

The other Australian rare earth mining opportunity was Arafura, but a Chinese miner has just bought into Arafura with the probable intention of taking any ore concentrates produced there to China for refining, where they will be subject to Chinese export allocations and restrictions.

Toyota has a backup plan, which is very aggressive for a car maker. Toyota’s own in-house trading company has bought a smaller Japanese trading company, which has an interest in a rare earth mine being developed in Viet Nam with the participation of the Viet Namese government.

This could make Toyota the first ever car company to be vertically integrated as a producer of batteries of any type. It would have the mine and the refinery for rare earth metals and its own in-house battery and powertrain manufacturing.

This would allow Toyota to be the first car company to acquire critical metals such as rare earths, cobalt, and nickel for perpetual use. This would mean that since Toyota would produce and refine rare earth metals it would have the facilities also to recycle them. These expensive and technology-intensive operations would not have to be duplicated or built only to be used occasionally, since they would be processing ore to extract, separate, and refine rare earth and associated metals continuously anyway recycling would simply add a feed stock stream to an existing one.

Toyota in this scenario would know exactly how much of the critical rare earths it could obtain at any given moment, and any additional feed of ore or scrap would only serve to increase the total.

The batteries, wiring, and motors of cars on the road could be viewed as critical metals long term inventory , and market data would allow Toyota to calculate how much rare earth, nickel, and cobalt metal it could recover for reuse in any given time period.

In such a system scrap purchased from outside of the company would simply be a permanent addition of metals in or for use in the master inventory.

I believe that Toyota and, most likely, Honda are now watching Australian politics to see if China is allowed in fact to effectively take over Arafura, which will add jobs and create wealth in Australia, but ultimately place Arafura’s output under the control of the Chinese government.

I suspect that Toyota and Honda, having both, probably, made now moribund offtake agreements with Lynas would both like to buy Lynas and go forward with its plan to build a refinery in Malaysia. Perhaps the two of them can strike a bargain or can make a deal through an independent trading house such as Sumitomo.

In any case, if a Japanese car company or a Chinese mining company gets control of one of or both of the Australian deposits, the rare earth metals produced there will either go into a RAMAC type system operated by Toyota or Honda or into China’s domestic supply. In either case those metals will be taken off the world market.

The Japanese car companies are moving towards an end game for acquiring and holding forever as much rare earth metal as they can. Otherwise, they will wind up with a technology, the production of which has been severely limited by the inability of the mining industry to increase production enough to satisfy demand.

I think that Toyota’s announced increases in its production of nickel metal hydride battery, using hybrid power trains, indicates that it has adopted the closed loop use of rare earths.

If I am right, then open market rare earth pricing will go through the roof as the available supply diminishes through Chinese and Japanese sequestration for their own use. However, at the same time, companies like Toyota will have some flexibility in determing their costs, due to the fact that only they will know their true internal cost of critical rare metals in their closed loop value chain.

Perhaps this is one of the reasons that Toyota has been dropping the replacement cost of nickel metal hydride battery packs over the last few years, even as prices in the open market for the key rare earths were going up.

Without any major new discoveries of non-platinum group metal (PGM) technologies, for the control of exhaust emissions from internal combustion engine, hydrocarbon fuel (ICHF)-powered vehicles, the total demand for PGMs by the global OEM automotive industry will depend on the percentage of the total of such vehicles built that will continue to use ICHF power trains. Currently all indications are that this percentage will decline from today’s 99% beginning in the very near future.

It is noteworthy that in the near term this percentage decline may not matter much in determining the total demand for PGMs for exhaust emission control use. This is because the total number of motor vehicles built annually, is poised to climb sharply when the Brazil-Russia-India-China (BRIC) economies resume their journey to improve their populations’ standards of living. Thus if the total number of vehicles built, climbs more rapidly than the rate of conversion of vehicle power trains to non-ICHF types,  then the demand for PGMs by the global OEM automotive industry would increase until or if the rate of conversion surpasses the increase in total vehicles.

The irony of this situation is that the use of PGMs by the OEM automotive industry, came about as a first attempt to control the degradation of the atmosphere by toxic and acid-rain forming gases, namely carbon monoxide, unburned hydrocarbons, and nitrogen oxides. Today’s ICHF cars, equipped with PGM-based catalytic converters, emit only water vapour, nitrogen, and carbon dioxide exactly as planned. Unanticipated was the finding that carbon dioxide was the biggest man-made contribution to global warming. Thus, the PGM industry’s largest demand is for building devices that are believed today to highlight the reason – the production of only carbon dioxide (and water) – that the ICHF engine must be eliminated from mass use as soon as possible.

Notwithstanding the foregoing irony, it is also true that economics plays a very large part in the slow growth of alternate power train technologies. If personal vehicles are to be practical and universal, then current technology requires that they be powered by ICHF engines. Unless governments want to severely damage their economies, their goal must be to reduce carbon dioxide emissions from ICHF engines, while trying to find the best way to replace them in mass production.

This agenda has only been operating for the last few years and it has spawned the development of several alternate power train systems with much lower emissions and a few with zero emissions, at least of carbon dioxide.

The reduction or elimination of PGM usage to control the emissions of ICHF burning engines – so that the emissions consist of only water, nitrogen, and carbon dioxide – will, I believe, continue to apply to the bulk of the production of personal motor vehicles for most of the next human generation. Reduction of usage can only occur when the average global consumer accepts smaller cars with smaller engines, needing less emission control. Total elimination of usage of PGMs for exhaust emission control, can only occur if all vehicles are powered solely by batteries or economical fuel cells. Alternatively, if a hydrogen production and distribution network is globally constructed, an internal combustion engine, using hydrogen as a fuel, as well as a fuel cell using hydrogen, will emit only water vapour as an exhaust.

The question of the future of the demand for PGMs by the OEM automotive industry thus becomes “how soon is it likely that the percentage of vehicles built with non-ICHF engines, will begin to grow at such a rate, that one can accurately predict the end of the need to use PGMs for exhaust emission control?’

The answer to this question is fluid, because it will change each time a new technology is put into production. Additionally, this question will be thrown out as a statement of inevitability, each time a new power train motive technology is tested by one investor-sector: short sellers and other speculators. They know that as long as the public understands the impact of non-ICHF power train motive technologies on the use of PGMs, it will buy and sell the shares of PGM producers and end product fabricators upon each announcement of the success or failure of an experimental power train. One current example, is the plug-in re-chargable lithium-ion battery, supposedly to be ready by 2010-11 for the Chevrolet Volt.

No one nation is going to stop the building of ICHF-powered personal vehicles and simply substitute unproven, expensive, resource limited technologies in its place. However,  institutional investors are going to now be permanently hesitant to fund long term new production of or, I think, exploration for PGMs, or even research into the utilization of lower grades of ore or the recovery of PGMs that exist as very low grade byproducts.

It may well be that PGMs have the highest grade recoveries from scrap of any industrial metal today. I believe that this business will continue to be funded, since automotive scrap catalytic converters are far richer in PGMs than any natural ore and a significant percentage of this scrap is still lost or wasted. The European OEM automotive industry is petitioning the EU to place an upper limit on how long a motor vehicle can be used before it must be scrapped. It is doing this to maintain production volumes at sustainable levels. Such a program – on a worldwide basis – would also insure that a significant amount of PGMs could be recovered and reused, and this would effectively increase the amount of PGMs available without the need for further mining.

I am preparing a graph for a talk I am giving at the World Platinum Congress in London on November 18, and I will share it with Resource Investor readers a few days later. The graph will show the total PGMs mined since the advent of the catalytic converter. It will also identify the total amount now above ground that is recycled annually. And it will compare it to the average amount used per vehicle, to illustrate what size ICHF OEM automotive industry can be sustained indefinitely and then compare those figures with future production projections.

Below is a chart of the alternate power train motive technologies now in use, or under development. It is important to consider limitations on the production of the critical raw materials needed, to make any of them economically practical for mass production. The column title below that says “Mass Producible?” means “Could such a power train be produced today, in a volume that could make it possible to replace and eliminate a substantial percentage of the vehicles now using only an ICHF power train?”

Interestingly enough the one battery technology that is not now natural resource-limited for its critical raw material, is the lead-acid system. It was originally chosen as a power source for motor vehicles, when it looked as if gasoline and kerosene (diesel fuel) would not be available cheaply in wide distribution. The other factor that sold the car makers on going with hydrocarbon fuels, was the fact that such vehicles had more power, higher attainable speeds, and longer range than electric cars. Today that is still true; however if the general public could be weaned off of performance, then motor vehicles with zero emissions with a range of 100 miles on a charge at 60 mph could be quickly built again. Such a vehicle was built as a market test in the late 1990s by GM. It was called the EV1 and was quickly withdrawn, over the howls of its lessees, when California repealed its requirement of 2% ‘zero emission’ vehicles for the year 2000, for any company marketing new cars in California.

There is little likelihood of anything other than a slow decline in the percentage of total motor vehicles built using only an ICHF engine or a combination of an ICHF engine and a battery or fuel cell system, i.e. a hybrid, for the very long term. Therefore the total demand for PGMs will grow due to the sheer volume of vehicle production.

Prior to the market decline. it was projected that as many as 65 million motor vehicles would be built globally in 2008. It has been also projected that China will be building 20 million motor vehicles per year by 2015. in a global economy producing 125 million motor vehicles per year. Internal projections by OEM American car makers, predict that the global ‘build’ of hybrids and electric cars in 2015 will be at most 6 million. Therefore, the number of ICHF-powered vehicles built in 2015 could be nearly twice as many as today. Even with a global average of 4 cylinders per vehicle, the demand for PGMs must begin to go up soon and to continue going up for the next decade or more.

Unless the investment community takes into account the fact that the demand for PGMs must return to last year’s levels soon, and then grow to surpass past maximum levels, there will be a severe supply crisis of PGMs before 2015. It takes a long time to develop PGM mines, because, due to the low concentrations (ore grade) of platinum, palladium and rhodium found in their ‘primary’ ore bodies and their low concentrations as byproducts of ‘base metal mining,’ such as, for example, that of nickel. When mined together, as occurs with rhodium – which is mainly recovered as a product of platinum mining – enormous amounts of ore must be brought up from great depths.

To establish such operations is expensive and time consuming, and such projects cannot be sped up easily. They must now be under way in order to stave off a potential crisis. This is not the time to reduce or eliminate investment.