The platinum industry is in crisis, owing to an oversupply of platinum, which has been caused by a contraction in demand from Europe and reduced growth in China, says mineral adviser Venmyn MD Andy Clay.
This globally unfavourable situation has been complicated by internal chal- lenges facing the platinum industry, such as higher mining costs and a regulatory environment that has come down hard on infringements pertaining to health and safety legislation, he adds.
Further, companies operating in Zimbabwe have had to tread carefully with regard to the country’s Indigenisation and Economic Empowerment Act, promulgated in 2008, which requires that 51% of the country’s mines be owned by indigenous Zimbabweans.
“The platinum industry is facing mine closures and job losses in some cases, and the cross-subsidisation of loss- making mines in others. This suggests a gloomy prognosis for the industry in the short term,” Clay states.
Reuters reported in January that platinum and palladium prices were expected to struggle this year, with analysts drastically scaling back expec- tations for both metals as the eurozone debt crisis threatened global economic growth.
A Reuters survey showed the median forecast for platinum at an average $1 610/ oz this year, down from the median $1 900/ oz forecast in July 2011 and below the median trading price of $1 765/ oz of 2011.
For 2013, however, the gradual resolution of the eurozone debt crisis, together with a resurgence in global growth, as well as constraints to supply, is likely to boost prices again, says Clay.
Venmyn predicts that the platinum industry will bounce back as a result of strong demand fundamentals, particularly from emerging nations.
“This is because Chinese automotive demand and the derived demand for autocatalysts are strong and growing, as the Chinese middle class grows and inches closer to the same levels of auto- motive ownership as their developed- country counterparts,” says Clay.
Similarly, the jewellery sector, which consumes the second-largest number of platinum ounces globally after the autocatalyst sector, is experiencing an increased demand in platinum jewellery from China, as the populace becomes more affluent and desirous of displaying middle-class wealth, Venmyn explains.
However, despite the autocatalyst sector currently dominating platinum demand, fuel cells are expected to represent the commodity’s hope for the future, the company states.
“If fuel cells ever take off in a big way, platinum will be a highly sought-after and significant commodity, which will allow the global economy to move away from its dependence on fossil fuels for energy,” highlights Clay.
South Africa Number One
Clay states that South Africa is a leading platinum producer, with developing producer of platinum-group metals (PGMs) Platmin stating that 90% of the world’s global platinum mineral resources are estimated to be in South Africa’s Bushveld Complex.
South Africa’s production of platinum dwarfs the platinum production of any other country, since it produced 4.8-million ounces in 2011, compared with its nearest competing producer Russia, which produced 835 000 oz in 2011, notes platinum researcher Johnson Matthey in its 2012 platinum report.
Of the African nations, only Zimbabwe’s production is noteworthy on a global scale, since the country has produced 340 000 oz in 2011.
Further, Clay adds that it has been suggested by the industry that South Africa improve local beneficiation of platinum in increasing financial gains.
“The production of a higher-value commodity will increase the value of South Africa’s exports and the number of employees in the platinum sector,” he states.
Meanwhile, Venmyn notes that government has been helpful in promoting emerging platinum producers and ensuring that a few platinum producers do not lock up the sector’s mineral rights.
Mineral Resources Minister Susan Shabangu and the mining industry growth and development task team (Migdett) have identified preretrench- ment interventions in assisting the struggling platinum sector. However, it is not known how much government can influence the sector, since the current downturn in platinum demand is largely blamed on external factors, such as the eurozone debt crisis, says Clay.
“In the long term, demand fundamentals suggest that the platinum industry will recover,” he assures.
Some companies have responded to the downturn in the market by shutting mines and redeploying staff where possible, while other miners are investigating restructuring measures and will, presumably, also investigate measures to reduce costs.
In June, Johannesburg- and London- listed Aquarius Platinum placed its Everest mine, in Mpumalanga, on care and maintenance, as ramp-up challenges and the low PGMs price environment rendered the mine uneconomic.
The company, which has three of its seven operations under care and maintenance, says it will restart mining once the platinum industry has entered a better price environment and has improved industrial relations.
In the same month, Aquarius also suspended operations at its 50:50 joint venture Marikana platinum mine, near Rustenburg, in the North West province.
The group’s Blue Ridge mine, in Mpumalanga, ceased operations during 2011 as the rand basket price failed to justify further capital expenditure.
“Hopefully, the industry will be in leaner and more cost-competitive shape once it has recovered, which will ensure a more sustainable growth path,” Clay concludes.