DETROIT (ResourceInvestor.com) -- If you are thinking about investing in natural resources based on their demand by the global OEM automotive industry, the world’s largest user of commodity metals, you must always be aware that the industry does not easily share innovative technical information within itself, because individual manufacturers are keenly aware that technology can give competitive advantage through the substitution of a cheaper metal for a more expensive one or the reduction or elimination of a metal’s usage by a manufacturer for either cost or environmental reasons.
Simple announcements that, for example, Ford [NYSE:F] will, or will not utilize, aluminum body panels can immediately affect global commodity prices way out of proportion to the actual demand for the commodity involved, because speculators prognosticate from such announcements an across the board change in an industrial process. Companies like Ford, therefore, try to protect their long-term costs by discrete risk management, where there is a futures market, whenever possible, before they ever make such announcements.
Most notably, having learned the hard way many times already, the financial management of the OEM automotive purchasing departments order their buyers NEVER to discuss, for attribution, their usage of platinum group metals in catalytic converters or diesel particulate filters, because such announcements can have devastating effects on the prices they pay themselves in the very volatile precious metals market. As I have said before I believe that the “estimates” of past and future usage printed on metal coated paper in the books put out by the precious metal trading companies are not worth the value of the metal used to coat the paper, because they purport to deliver information that they simply do not have access to.
So where can the small investor in natural resources get accurate news that will give him an advantage? One suggestion is to try looking for production process changes announced in the trade press, and, if you don’t have time to do the searching, or the ability to choose among the huge number of publications, or have access to them, then read ResourceInvestor.com
Last week, working on your behalf, I saw a headline on a car repair site from the U.K. that read: “New Paint-Priming Agent Reduces Substances of Environmental Concern.” After I read it I decided to let all of you know that if you want to know just one good general reason to invest in the producers of a metal, the companies that process it and the end users of those processes, that reason is its role in the lessening either of environmental concerns or of costs associated with environmental concerns or both.
This article is not about a metals usage in any particular types of vehicles. It is about the newest metal to be used in the ‘process’ of manufacturing automobiles and trucks for the main purpose of making the process more environmentally friendly then has been done previously, zirconium. This metal has not been used before on a car. A new use means, obviously, increased demand and a reasonable indication that there could be additional usage and demand if the use is successful and expands to other industries producing painted steel products.
Zirconium
Zirconium is best known to the general public for the use in jewellery of its oxide compound, zirconia, which, as cubic zirconia, is used as a substitute for (the appearance) of diamond. This use requires only a very small amount of zirconium oxide and has very little influence on demand.
Zirconium was first identified in 1824 and does have many large scale industrial uses of long standing application mainly due to the corrosion resistance under extreme conditions and high temperature durability of its compounds and alloys. It also has a large mundane use that puts it in every home (I hope) in America. A zirconium salt along with an aluminium salt is the basis of the active ingredient in nearly all underarm antiperspirants. This fact alone tells you that zirconium salts are of very low toxicity. Keep that in mind. Zirconium is produced and processed in the Republic of South Africa, Mozambique, the U.S., India and the Ukraine. It is nearly always produced as a byproduct of titanium minerals. In recent years its supply and demand have just kept in balance, but with new uses this balance could be upset.
Perhaps the most dramatic use of zirconium and the reason that it is available as a pure material is its use as a cladding material for nuclear fuel rods. Zirconium does not absorb neutrons at a very high rate, so it does not slow down the transfer of neutrons between fuel rods that produce the reactor’s heat through controlled fission chain reaction. The metal does seal the surface of the uranium fuel rods and prevent chemical corrosion of the uranium from the water that is circulated around the rods to absorb the heat produced by the controlled fission within them.
In nature, most zirconium is found associated with the metal hafnium. Hafnium is 100 times or more as good at absorbing neutrons as zirconium, so it must be removed from the zirconium for use in the nuclear fuel industry. The processes for purifying zirconium were thus developed at taxpayer expense during and after the war ensuring that pure zirconium metal and processes for making all of its chemical compounds were more thoroughly studied in the last 60 years than the same processes for many more common metals.
In summary, chemists know a great deal about the chemistry of zirconium and how it reacts with any other metal that are used in nuclear engineering. The corrosion protection by zirconium of other metals has been exhaustively studied. I have already mentioned how it protects uranium. It also protects iron-in the form of steel from corrosion, but this can be done with coatings of zirconium chemicals using only a small amount of zirconium per unit area of steel protected.
One of the key problems causing the decline of the OEM American automotive industry is its lack of keeping up with innovation in the global car industry. This is due to the ostrich like reaction of American automotive engineering and research and development staff to the world around them. This was historically caused by the arrogance of the “not invented here” attitude.
Consider as unfortunately typical the recent flip-flop by GM’s Director of Research and Development on R&D spending at GM [NYSE:GM]. When asked, he first said spending had been cut back due to economic conditions and then, when the press raised the issue of GM’s commitment to “innovation,” he backtracked and said that spending was being kept up in selected areas of innovation, such as the development of hybrids and hydrogen fuelled cars. When in doubt always mention that you are focusing on the currently fashionable environmentally and politically correct technologies even when as in the field of hybrid technology you are woefully far behind the foreign competition.
Toyota [NYSE:TM] announced today, Friday, April 7, that it is cutting back the production of hybrid vehicles due to fading consumer interest. The Wall Street Journal, in an article featuring the above Toyota announcement, reported today that GM, Daimler Benz and BMW have formed an alliance to speed up the development of hybrid power trains for SUVs!
You are asked to pay more for American cars than cars manufactured anywhere by Asian owned and operated companies. So it is a good idea to look at the comparison of the vehicles long-term reliability, safety and appearance. The smartest man in the Detroit automotive industry, a friend of mine, likes to say that the downfall of the OEM American automotive industry’s business model is compartmentalization. Its managing executives focus on single “metrics” rather than on a holistic view of how even a single engineering or procedural change can affect the whole process, in particular the cost, of making and selling cars.
A good example of this is the replacement of zinc by zirconium in the standardized process for pretreating the steel sheet metal “body in white” of a vehicle, for painting, by coating it with a complex metal (today, for body sheet metal applications, this is zinc) phosphate that allows the next (paint) layer both to adhere and to completely seal the surface for long term protection against corrosion. To reduce the environmental pollution caused by, the iron phosphate bearing, waste sludge from the paint pretreatment baths at every automobile assembly plant on earth the Toyota car company has approved a new process chemistry using low toxicity zirconium salts rather than zinc (and, usually other metals such as nickel and manganese, as activators) salts. Toyota has begun the systematic replacement of the older (zinc) process by converting a plant in Japan where Toyota engineers can monitor the process to look for any unexpected problems that may arise.
The “New” Chemistry
The “new” chemistry is actually a modernization of a process developed in the U.K. in the late 19th century and made commercial in, where else, Detroit in the 1920s and 30s by a company named for himself by the businessman inventor who acquired the rights to the process. It was first (1915) called Parker Rust-Proof Phosphating Company of America. The direct descendant of that original company, still in Detroit is now, of course, a unit of the German global chemical giant, Henkel [LSE:HEK]. The wholly owned subsidiary of Henkel that is the largest provider of (zinc) phosphate coating technology to the global OEM automotive industry is Henkel Surface Technologies (HST). If you’re interested, the second largest provider is also a German company, Chemetall [LSE:CHM].
Before WWII, Parker in Detroit thought that an easy way to make money was by selling licenses for its technology around the world. This would be cheaper than setting up business operations in a multitude of countries.
One of those licenses then was a company today known as Nihon Parkerizing Company, Ltd. of Japan. The Japanese company carefully studied the technology and after the war rebuilt itself and, although maintaining some ties with its American licensor, began developing its own processes and technologies for the Japanese car industry in which of course the original American Parker company wasn’t interested-the Japanese industry was too small and had no growth potential like the North American auto industry!
Nihon Parkerizing Company, Ltd. operates in the United States today as Trutec Industries Inc. with operations at several locations. It is a competitor of Henkel and Chemetall, and is positioned to covert the American and Canadian plants of Toyota from zinc to zirconium whenever it gets the authorization. Trutec not only manufactures pretreatment chemicals, but it also makes the pumps, controls and the physical bath tanks in which pretreatment chemicals are utilized and supplies environmental services for its products.
Toyota’s Innovation
Last week, GM, for one, seemed to be caught completely off guard by Toyota’s announcement that it was putting the zirconium-based pretreatment process into operation in an assembly plant in Japan. I suspect that no one at Ford had heard about it either prior to the announcement.
A scrap dealer, I know who deals with both GM and Ford, who had read the announcement, asked the Ford scrap manager what effect the addition of zirconium to the scrap stream would make on the value of the scrap. Would it be decreased because the zirconium would have to be removed? The answer was, “What are you talking about?”
In Japan, Toyota had already discussed these issues with its steel suppliers and scrap processors. Apparently a small amount of zirconium can have a large effect on the properties of steel, but the steel maker can take this into account as long as they know about it beforehand. The project is going ahead. Toyota, for reasons of competitive advantage, for itself and for its suppliers will not comment on the overall effect of the addition of measurable amounts of zirconium to its outgoing steel scrap stream.
All of the Japanese suppliers of Toyota who operate in the United States, not just Trutec, are already preparing for the change from zinc phosphate to zirconium salts pretreatment of the body-in-white at Toyota’s North American plants. Toyota and Nihon Parkerizing have studied the overall effect of this change on their worldwide operations and have instructed their steel suppliers, their scrap processors, their paint suppliers and their environmental management suppliers to be ready to make the necessary changes in their operations.
In the meantime the Toyota Company in Japan in concert with the Japanese government have made preparations to add zirconium to the list of strategic metals to be stockpiled. The Korean carmakers have done the same also with their suppliers and their government.
Hyundai, the Korean carmaker, would not comment on this topic, but it offers a 100,000 mile warranty against rust and perforation on its cars. Ask your GM or Ford dealer what they offer? What do Hyundai and Toyota know about long-term corrosion protection that others do not? One thing they know for sure, zirconium will not compromise their world class anti-corrosion warranty!
Conclusion
GM and Ford have announced no work in process on this matter. They do not traditionally discuss such matters with their suppliers. The U.S. government does not strategically stockpile zirconium.
The market capitalization of Toyota today is more than 16 times that of GM.
Zirconium is just one of the reasons.
Remember that it is not only product that can be innovative but also process. Look for it.
