How do the recent EU discussions regarding CO2 emissions targets of 120 g/km by 2012 affect SinterCast?

Shareholder, name withheld

All legislation designed to improve fuel efficiency and to reduce CO2 emissions is helpful to SinterCast.

In the first instance, diesel engines have lower CO2 emissions than petrol engines. Therefore any legislation that requires lower CO2 output will also favour an increase in diesel production and sales. As the higher strength and stiffness of CGI is ideally suited to the higher thermal and mechanical leads found in diesel engines, the trend toward increased diesel sales should also positively influence the market demand for CGI.

Secondly, the improved properties of CGI allow diesel engines to operate at higher cylinder pressures. This, in turn, provides two benefits:

  1. Higher cylinder pressures enable smaller engines to provide performance levels that are similar to larger engines. For example, a 1.5 litre CGI engine may provide the same performance as a 2.0 litre grey iron or aluminium engine. The smaller CGI engines would provide 5-10% better fuel economy, and therefore, lower CO2 emissions.
  2. Higher cylinder pressures result in more complete combustion and therefore, less CO2 output. Even if the NOx emissions increase with higher cylinder temperatures and pressures, these can be eliminated by treating the exhaust gas. In this regard, it is positive for SinterCast that the EU focuses primarily on CO2.

Approximately 5 years ago, the association of European automobile manufacturers (ACEA) made a voluntary commitment to reduce CO2 emissions to 140 g/km by 2008. The primary strategy of the European OEMs was to convert petrol engine sales to diesels in order to meet the 140 g/km target. However, in the meantime, there has been an overall trend toward larger vehicles. The resulting demand for larger engines has increased fuel consumption and prevented the OEMs from meeting their voluntary CO2 target.

As it is now fairly certain that the European OEMs – who are currently at approximately 160 g/km – will not meet their voluntary target, the government is threatening to impose legislation. The prospect of government legislation in response to non-compliance with the voluntary target has been widely discussed in the automotive industry for the last 2-3 years, however, it is only recently that the media coverage has resulted in public awareness. In truth, a reduction to 120 g/km by 2012 is not significantly different from the self mandated target of 140 g/km due in 2008. What the OEMs are likely to seek is different CO2 levels for different clauses of vehicles, allowing the growing fraction of SUVs and large luxury vehicles to have higher CO2 limits.

Although it may not be popular with the OEMs or the public, more stringent emissions legislation and higher fuel prices will promote fuel efficiency, and this will always favour SinterCast’s long-term market opportunity.