Ramaphoria’ boosted the rand and revived investor sentiment on South Africa. But deep underground in the country’s platinum mines, there is very little cause for optimism.

Producers in South Africa, which accounts for about 70% of the world’s mined platinum, are closing shafts and cutting thousands of jobs as a stronger rand combines with stagnating prices for the metal in squeezing profit margins.

The future looks equally bleak, as reduced demand for diesel engines and the rise of electric cars threaten to erode the need for the metal used to cut pollution.

“The industry is going to shrink in size until there is a new source of demand,” said Natixis SA senior commodities analyst Bernard Dahdah. “We are likely to see more operations close.”

Further losses in the platinum sector, a top export earner, will add to the pressure on President Cyril Ramaphosa as he seeks to kick-start an economy that is currently projected to grow just 1.5% this year and drive down a 27% unemployment rate. The domestic platinum industry generated about $8-billion in sales last year and employed more than 175 000 people, according to the Chamber of Mines, which represents most mining companies.

Across the industry, the cuts are piling up. Impala Platinum Holdings shut a shaft at its Rustenburg operation in January, flagged three more to be closed once mined out and fired 1 400 workers. The miner has closed ten shafts since 2013. Rival Lonmin burned through a third of its cash last quarter and could cut more than 12 000 jobs over three years, while top producer Anglo American Platinum has a spending freeze in place on major new developments.

A lot of the industry’s most immediate problems are linked to the rand, which strengthened by about 13% against the dollar in the past six months, as of last week.

That is bad for platinum miners, which get paid in dollars, but pay most of their costs in rands. In rand terms, platinum is down more than 15% since mid-November.

Production losses in platinum will have a negative effect on South Africa’s export earnings and the current account, said Bloomberg Economics Africa economist Mark Bohlund.

“As platinum is South Africa’s biggest export item, any losses in the sector will weigh on the trade balance,” he said.

The new President needs an urgent plan to create jobs for the thousands of workers affected, said Ross Harvey, an analyst at the South African Institute of International Affairs.

“Ultimately, he isn’t responsible for the way markets behave, but he needs a good strategy to create new jobs in the platinum belt.”

While the rand has made things worse, the industry also faces more fundamental challenges. Prices are 60% below record highs set a decade ago, and have bobbed along in a narrow range for the last two years.

Part of the problem is that there is more than a year’s supply of metal stockpiled above ground, according to Metals Focus. And while the world produced 8-million ounces of the metal in 2017, it consumed only 7.7-million ounces.

The market balance may improve this year, as the South African cuts take effect. The World Platinum Investment Council, an industry lobby group funded by the miners, forecasts flat demand in 2018, after a 7% decline last year, while mine supply is forecast to decline 4% this year.

“The problem has been available inventory,” said Peter Mallin-Jones, a London-based analyst at Peel Hunt. “As soon as inventory starts moving down, prices are likely to move up.”