[miningmx.com] — ONE can’t imagine South Africa’s platinum producers being in celebratory mood following the latest round of market forecasts.
The average six-month price forecast of $1,600/oz, estimated by Johnson Matthey, the UK semi fabricator and market consultancy, is slightly below “all-in costs” which another market watcher, Thomson Reuters GFMS estimates to be $1 653/oz.
All-in costs include sustaining capital, which is why Anglo American Platinum CEO, Neville Nicolau is right in saying for new investment in the platinum group metals (PGMs) sector, a platinum price of $1,900/oz is required.
If anything, the figures from Johnson Matthey and GFMS support Anglo American’s decision to ratchet back capital at Amplats by R1bn.
Ultimately, lower production from SA, which controls 85% of the world’s platinum market, will lead to a price recovery.
The question is when. One difference of opinion between Johnson Matthey and GFMS is how stockpiles will affect the market in the short to medium term.
Both agree that a surprise 250,000 oz release of “in-pipeline’ stocks from SA miners helped offset the lower year-on-year production from the country’s miners.
In fact, one stockbroker observes this was simply to release working capital.
However, GFMS thinks the stockpile will continue to grow and might even sit on platinum’s normal premium if it reaches two to three years’ worth of annual production.
Estimated at 4.5m oz, these inventories may balloon to 5m oz/year from now and there’s nothing on the demand side of the equation that will rapidly diminish the stockpiles that have been growing for years now, according to Paul Walker, a well-known gold industry commentator and now GFMS’s global head of precious metals.
“There’s no killer app,’ he said recently in a presentation of sudden demand for the metal.
Jewellery demand is dependent largely on Chinese appetite where inflation is high and economic growth is being controlled down. Demand for platinum in autocatalyst fabrication partly turns on European demand, the growth of which is also the subject of debate given the sovereign risks in that region. Therefore, attention falls on investor interest in platinum, which is mostly absorbed through financial products like exchange-traded funds, as well as platinum bars of course.
“As with all metals, determination of the market will be driven by investors, and not just those seeking yield, but also those seeking insurance policies,’ says Walker.
In the main, however, the outlook is grim for platinum, in Walker’s estimation: “There’s nothing out there that can ride to platinum’s rescue,’ he said.
It could potentially get worse. Natixis, the French bank (which, ironically, is to shut its commodities brokerage unit) observed in its second-quarter metal review that in the event of a sharp deterioration in the European economy – either through a prolonged recession or a peripheral sovereign default – the price of platinum could average as low as $1,100/oz.
It’s not all bad news, however. SA platinum producers derive a basket price for other metals they produce in the PGM family of which palladium is one.
While Johnson Matthey expects the platinum market to reduce the surplus from 450,000oz in 2011 to 100,000oz in 2012, the palladium market is forecast to swing back into a deficit in 2012, helped by a reduction in supply from Russian inventories, which may continue, but at a lower level.
The likelihood for investors, as commented in Finweek in previous editions, is 2012 will be a year of bumping along the bottom for platinum producers. With the prospect of Anglo Platinum mothballing or selling platinum production, Impala unlikely to recover much of its 120,000oz production loss from a strike this year, and ongoing problems at Northam Platinum, which suffered a smelter run-out at its Zondereinde operation, the platinum price may run ahead of anticipated production shortfalls.
Still, analysts’ comments make for some sobering reading. “PGM miners look like the living dead as rising costs slash margins, and the need for ongoing investment reduces the companies to little more than effective state enterprises to maintain jobs and PGM output,’ said UK stockbroker, Fairfax, in a note to clients last week.
– Finweek
