European diesel ban impact on catalyst producers ‘less than feared’ – Bernstein

LONDON (ICIS)–Forthcoming bans on the sale of diesel vehicles in several European countries should not be a reason to despair for producers of automotive catalysts, chemical analysts at Bernstein Research said on Thursday.

The analysts’ investment note was issued after the UK’s chemical and catalysts producer Johnson Matthey’s share price has dramatically underperformed other peers in the chemical industry since last year, with the stock down by 25% since October.

The decline in Johnson Matthey’s share prices has been linked to fears that the company’s emission control technology (ECT) segment, its most profitable business unit, will suffer as diesel vehicles are phased out.

“The ECT unit sells automotive catalysts, a device that reduces the NOx [nitrogen oxide], hydrocarbon, and CO [carbon dioxide] emissions from vehicles. European diesel vehicles are a key market for the auto catalyst industry, accounting for 38% of light duty vehicle (LDV) catalyst sales,” said Bernstein.

However, the analysts said that investors’ sentiment could shift and forecast that the impact of the diesel bans on companies like Johnson Matthey will be “less than feared” due to several factors.

Firstly, the analysts said European Commission – the EU’s executive body – is not interested in seeing the diesel market collapse rapidly. A recent comment from the industry commissioner Elzbieta Bienkowska would backed up that sentiment, they added.

“While I am convinced that we should rapidly head for zero emission vehicles in Europe, policymakers and the industry cannot have an interest in a rapid collapse of the diesel market in Europe as a result of local driving bans,” said Bienkowska.

“It would only deprive the industry of necessary funds to invest in zero-emissions vehicles.”

Bernstein also highlighted that diesel fuel can be clean, citing analysis from a green lobby group, Transport and Environment, in which they conceded some diesel cars are capable of a similarly low level of emissions as seen in gasoline cars.

The analysts also said the industry has not come up with an alternative to diesel for larger engines, meaning that these vehicles will have to be fitted with more advanced catalysts – thus providing more continuing business for the likes of Johnson Matthey.

“With the most adamant anti-diesel advocates softening their respective stances on diesel, we have a clear indication that drastic measures such as an outright ban on diesel vehicles is out of the picture as long as OEMs [original equipment manufacturers] keep working to meet strict emissions targets such as [EU’s regulation on emissions] Euro 6, which will coincidentally increase catalysts values on new diesel vehicles,” Bernstein concluded.

“While the units of diesel vehicles will certainly decline, strict regulation around diesel vehicle emission limits also provides a significant tailwind to the ECT business unit as catalyst value will have to increase”.

The analysts forecast the average catalyst values for EU-produced diesel cars (excluding precious metals) will stand at $268/unit by 2020, up by 26% compared to $213/unit in 2015.

(Pictured: A car stockpile in Essen, Germany. Source – Hans Blossey, imageBROKER, REX, Shutterstock)