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Supply side factors to continue impacting platinum price

3rd May 2013

By: Idéle Esterhuizen

  

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The price of platinum this year would, in large part, continue to be determined by supply side factors, Thomson Reuters GFMS mining research director William Tankard said on Friday.

Discussing the firm’s latest yearly  Platinum & Palladium Survey, he noted that further labour unrest was likely, as South Africa was moving into its wage negotiation period and shaft-restructuring plans were under discussion with government.

He told Mining Weekly Online that if labour disruptions persisted into the year, production in the local platinum mining sector would see a comparatively flat outcome in terms of output.

“Should these two factors [continued labour unrest and industry restructuring] be realised, we expect South African platinum output to fail to rebound this year, even after a calamitous 2012.”

He was referring to Anglo American Platinum’s (Amplats’) proposed restructuring, which, when announced in January, was aimed at removing about 300 000 oz from the market and result in the loss of some 14 000 jobs.

As part of the restructuring, Amplats would place its 1 and 2 shafts at both the Khuseleka and Khomanani mines on long-term care and maintenance, while its Rustenburg operations would be consolidated into three operating mines. In addition, the Union Mine North declines were likely to be closed, while the Union mine was to be sold.

Amplats was to disclose details of the outcome of negotiations regarding its restructuring next week, which Tankard said, was cautiously being awaited by the global market, which was seeking to determine how South African platinum producers reacted to market forces.

“Should restructuring take place and supply be kept off the table, we would expect reasonably positive investor sentiment to take on a small surplus and drive a pick-up in prices through the year, to average almost $1 600/oz. With more than seven months’ demand cover, or one year of South African mine production sitting as stock in the terminal markets, there is plenty of metal about,” Tankard said in an earlier statement.

“If we do not see an uptick in price, then the Amplats proceedings will not be the last,” he noted, adding that he was confident that the South African industry would face substantial labour pressure going forward, which would drive companies to undertake material restructuring.

“If this is realised, we will see comparatively flat production, which will flow through to positive investor sentiment that will have the potential to drive prices higher and dissolve into a modest surplus market,” he indicated.

On the demand side, the outlook remained delicate, particularly in Europe, which accounts for about 50% of global autocatalyst demand, but was showing a slow economic turnaround. He said this pointed to the need for platinum supply to be kept reined in for prices to strengthen and adequately compensate continued long-term investment in an industry with unrelenting cost inflation.

Tankard said Europe’s lagging economic recovery was likely to continue, which would lead to a muted performance over next year and potentially beyond that.

“Outside Europe, the outlook is cautiously positive [for] emerging markets, as well as developed markets such as Japan and North America. However, these markets are primarily gasoline markets where the metal used in autocatalysts is primarily palladium,” he added.

The survey revealed that, following seven consecutive years of gross surpluses, the platinum market swung to a marginal deficit of 83 000 oz or 2.6 t in 2012, seizing the growth of platinum stocks that have risen substantially since 2004.

The research firm attributed this, in most part, to supply side factors, with refined metal outturn from the three major sources, namely mining, autocatalyst recycling and the recycling of old jewellery scrap contracting during the year by 10%, 9% and 19%, respectively.

Overall, the withdrawal of platinum supply overwhelmingly originated from the mining industry, where the 10% drop translated to 620 000 oz or 19.1 t less metal, largely as a result of protracted episodes of illegal strike action in the South African industry, which drove a 12% drop in refined mine production.

“The overall quantum of the reduction was an about eight-million-ounce drop in supply during the year. In total, the mining industry contract by 600 000 oz of which about 560 000 oz was attributable to South Africa and, of that drop, a large amount can be attributed to labour unrest throughout the year, as well as the slow ramp-up on the back of that,” Tankard stated.

Meanwhile, the report revealed that platinum demand exhibited more stability, with an overall 1% lift year-on-year, with the stand-out performer being jewellery demand, which grew by 9%.

Overall, above-ground bullion stocks of platinum remained substantial last year, estimated at more than 4.3-million ounces or 134.5 t.

In terms of palladium, supply dropped by 4% during 2013, also owing to mining disruptions, coupled with a slight reduction in autocatalyst demand.

Nevertheless, palladium demand remained robust, increasing by 5%. The metal’s use in autocatalysts rose by 9% as a function of growing USvehicle sales. Overall, these outcomes led to a surge in the palladium market’s gross deficit, which expanded to over 1.12-million ounces last year, the largest market shortfall since 2001.

Tankard stated that the outlook for palladium remained highly constructive, with supply expected to remain constrained and demand expected to benefit from ongoing strength in the automotive sector.

Although the palladium deficit was expected to continue over the next year and beyond, it was anticipated to ease off from last year to below one-million ounces, while the price was anticipated to average around $725/oz.

The key outstanding bear factor for the metal would be investors’ attitude towards above-ground stocks, which, in spite of the almost perpetual deficits, were still large at around ten-million ounces.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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