Demand for platinum- group metals (PGMs) remains highest from the catalytic converter and jewellery markets, says resource consultancy VCI partner Gideon Malherbe, pointing out that China’s automotive sector is expected to have another record-breaking year in 2015 and car sales in the US are expected to maintain a growth trajectory, based on data from US-based automotive industry body National Automobile Dealers Association and US automakers, such as Ford, GM and Chrysler.

He notes that the automotive sales in these countries maintained momentum throughout 2014, with the trend expected to continue in 2015.

“Automotive sales will keep growing in 2015 on the back of favourable economic conditions, particularly with automotive production increasing in the US and Europe.”

He highlights that China’s market share of global vehicle production, which was under 4% in 2000, increased to 25% in 2013, adding that the country’s automotive sector will continue to expand as wealth distribution reaches more of its citizens, enabling them to enter the market by buying new automotives.

“The new Euro VI emissions standards that came into effect last year are forcing Chinese automotive manufacturers to increase the amount of platinum used to manufacture catalytic converters, a trend I expect to continue as the Chinese government tries to tackle the country’s critical pollution crisis,” Malherbe states.

He adds that China’s demand for platinum jewellery represents about 65% of the world’s total demand and, as disposable income becomes more available to Chinese consumers, gold and platinum jewellery sales will increase.

Meanwhile, demand for South African-produced platinum is also expected to increase this year, owing to increased sanctions on Russia and stricter carbon-emission restrictions in Europe, states Malherbe.

Malherbe asserts that the increased economic sanctions imposed on Russia – the world’s second-largest producer of platinum – by the US and European nations, could result in supply shortages of PGMs.

However, he suggests that hidden stockpiles of palladium could surface, should such a supply shortage become a reality.

PGMs demand will further increase because of more stringent European Commission emission restrictions, particularly with the adoption of Euro VI standards last year, which Malherbe notes “substantially tightens nitrogen oxide (NOx) emission limits for diesel vehicles”, resulting in the need for improved platinum-based auto catalyst technology.

Euro VI standard technology reduces NOx emissions by 75%, compared with Euro V standard engines.

Platinum-Sector Strike
Malherbe tells Mining Weekly that, despite platinum supply losses of 1.2-million ounces, valued at about R2-billion, owing to the five-month-long platinum strike organised by the Association of Mineworkers and Construction Union in January last year, the price of the precious metal surprisingly dropped sharply in the second half of 2014, ending the year slightly above the $1 200/oz mark.

He explains that, although platinum prices increased, the improved platinum price was capped, owing to larger-than- expected platinum stockpiles, which were secured during previous years of weak demand and held by platinum mining companies.

Meanwhile, the significant drop in platinum production contributed to South Africa’s contracted gross domestic product growth in the first quarter of last year, which decreased at a yearly rate of 0.6%, notes Malherbe.

“South Africa has 80% of the world’s platinum reserves and produces about two-thirds of the world’s platinum supply; therefore, platinum mining majors Anglo American Platinum (Amplats), Impala Platinum and Lonmin not producing platinum for five months during the strike caused a significant drop in supply.”

Malherbe points out that the strike adversely impacted on not only mining companies and the South African economy but also local small business owners and mineworkers who lost close to $1-billion in wages.

“Overall, 2014 was a tough year for platinum producers, with falling prices testing miners’ profit margins. Even strong sales in the global automotive sector did little to raise platinum prices,” he states, noting that platinum mining major Amplats estimated that it had lost more than $1-billion in revenue, notwithstanding the overhead costs the company incurred during mine closures caused by the strike.

Despite the significant production losses incurred last year, Malherbe remains positive, stating that the platinum sector is on the road to recovery. “The opportunity cost of the strike was too high to recover in such a short period. However, risks still remain, as slower economic growth or a drop in the gold price could drag platinum down with it,” he warns.