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JOHANNESBURG (miningweekly.com) – As the future of the bulk of South Africa’s platinum group metals (PGM) output hangs in the balance on the back of a protracted strike weighing on the nation’s three largest producers, palladium and platinum deficits were likely to reach two-million ounces and 1.2-million ounces respectively this year, Standard Bank commodities head Walter de Wet told Mining Weekly Online.
This was an uptick on Standard Bank’s April forecast of a 815 000 oz platinum supply deficit for 2014 as a whole – a volume that could have been down to 300 000 oz had the strikes not occurred – and a palladium deficit of more than 1.5-million ounces.
Palladium would close 2015 with a 1.3-million-ounce deficit and 2016 with a 1.8-million-ounce deficit, de Wet said.
Further, the palladium price was likely to breach the $900/oz mark sooner than 2016, as previously forecast by the bank earlier this year, owing to rising palladium exchange-traded funds and supply constraints as the crippling strike continued with only a tentative end in sight.
In April, Mining Weekly reported that Standard Bank had revised its 2014 palladium price forecast upwards to $785/oz, while palladium prices were expected to rise to $875/oz, $938/oz and $975/oz in 2015, 2016 and 2017 respectively.
The market looked bullish for palladium, particularly as demand from the US and China rose, he noted.
Palladium prices on Thursday reached a high of $863/oz, while platinum prices, which had remained stagnant since the start of the strike, rallied to $1 482/oz, before stabilising at around $1 475/oz.
As with palladium, platinum had significant above-ground inventories, but there was also muted demand for platinum jewellery, which accounted for 30% of overall demand.
The demand for gold jewellery had outstripped demand for platinum jewellery owing to the lower gold price.
“The recent price rises in both platinum and palladium have been driven by an outlook for improving supply-demand dynamics both in the short and medium term.
“On the demand side, it appears that European auto sales have troughed and overall global industrial growth appears to remain robust,” Barclays precious metals research analyst Andrew Byrne said in an emailed response to Mining Weekly Online.
Cadiz economist Peter Major indicated that it was possible for the palladium price to catch up to that of the declining platinum price, but should the price rise further, it was likely that autocatalyst manufacturers would seek out the use of rhodium or platinum as a substitute.
De Wet noted that the platinum price was unlikely to rally past Standard Bank’s 2014 forecast of $1 470/oz, as supply was supported by recycled metal and above-ground stock.
However, should the platinum belt strike continue until year end, it could potentially rise to $1 600/oz, which was in line with Major’s prediction that the price would likely rise about $50/oz a month.
Major said that, in addition to the 25% supply from recycling, the platinum market was already in oversupply, which had kept the prices low.
“The platinum price was [already] on its way down [when the strike started],” he explained, saying that the strike was holding the price steady and, should it end in the short term, the price would continue its decline.
By March, the then two-month-old Association of Mineworkers and Construction Union- (AMCU-) led strike had removed about 670 000 oz of PGMs from the market, comprising 400 000 oz of platinum, 225 000 oz of palladium and 54 000 oz of rhodium.
By Friday, the strike had cut about 30% of the year’s output.
“The strikes have removed over one-million ounces of platinum supply in 2014 (about 12.5% of global supply) reducing available above-ground inventories,” added Byrne.
The growth in PGM recycling would offset some of the primary supply shortfall; however, the markets could enter a sustained period of fundamental deficits, which would be supportive of higher metal prices, he said.
“Even if [the] strike ended tomorrow, it would take two months to gear back up production, meaning that conditions are likely to be similar for much of the third quarter of the year, and likely into the fourth quarter too.
“All the while, this will have knock-on impacts on the wider economy and [strikes in other sectors] will likely start to overlap in the third quarter too,” Nomura economist Peter Attard Montalto said.