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Platinum loses its shine
Brendan Ryan
Posted: Mon, 21 Jul 2008
[miningmx.com] -- PLATINUM shares stabilised on the JSE today after taking a pounding at the end of last week as the platinum price dropped sharply and analysts turned negative on the short-term outlook for the metal.
The turnaround in sentiment has been dramatic given the prevailing attitude towards the metal over the past two years that nothing could derail platinum's prospects.
The platinum price is current trading between $1,830/oz and $1,856/oz which is 19% down on the levels of just under $2,300/oz at which the metal sat at the beginning of March.
Reason appears to be growing concern over the continuing impact from the sub-prime crisis in the US which could lead to a recession in several of the world’s major economies.
That could hit the automobile industry – which is the world’s most important consumer of platinum – and result in the platinum market
ending up more or less in balance this year instead of the large deficit previously predicted.
The first warning on such a development was sounded in April when UK research consultancy GFMS published its 2008 Platinum and Palladium Survey.
GFMS CEO Paul Walker said at the time “It seems probable that 2008 will be the tipping point when fabrication demand finally suffers a material decline. In our view this will serve to mitigate the on-going difficulties over supply.”
The main supply difficulties involved the impact on the South African mines – which account for around 75% of world platinum supply – of the Eskom crisis and the safety issues on various mines which had disrupted production.
JP Morgan analysts Deanne Gordon, Steve Shepherd and Allan Cooke now seem to be in agreement with GFMS.
In a research report issued last week JP Morgan said it believed the case for platinum had “dulled” in the near term although the firm still saw
“longer-term support” for the metal.
JP Morgan reckoned almost all fund managers in the US, EU, UK and SA were “unanimously bullish platinum” up until May - particularly with China and India powering ahead – but that is now changing.
“Talk of synchronised growth appears to be receding in favour of talk of a synchronised slow-down – with the “R” word becoming a more popular refrain.
“China appears at this time to be the only beacon amongst the planet’s powerful economies. This is not a great backdrop for growing platinum demand, in our view.”
JP Morgan also pointed out the platinum mines have adjusted successfully to “getting by” on power quotas of 90% to 95% and have also “made significant progress in improving on the dismal safety performance that was a feature of 2007.”
The firm reckons that, for the rest of the year, platinum supply may “just exceed” widespread expectations while, conversely, platinum demand is not expected to match the market expectations held up until just a couple of weeks ago.
The report commented JP Morgan’s precious metals analysts viewed platinum as the “good-time girl” of commodities.
“It’s about car sales, jewellery sales, consumer electronic sales and industrial catalyst applications. Maybe the party isn’t over but our analysts believe that it could go very quiet
for a while.”
Impala Platinum (Implats) marketing executive Derek Engelbrecht reckons the situation is not that clear cut.
"You have to look where platinum has come from. Six months ago the price was around $1,400/oz so, at $1,830/oz, it has not exactly fallen out of bed.
" I think the correction that has taken place is healthy and it is providing a buying opportunity in the metal. The jump in demand in Shanghai over the past week shows the Chinese jewellery demand is very much alive and kicking and picking up on the drop in price.
"The US car market is a palladium market not a platinum market because of substitution. Car sales in the BRIC (Brazil, India China) economies are still going very strong.
"I am also loathe to state that the SA platinum mines have got their act together despite the improvements that have taken place. I still think the SA mines will underdeliver on their promises."
But the situation is still not
good news for investors in platinum companies and, in particular, the platinum juniors where the carnage in their share prices has knocked many back almost to their 12-month lows.
Former high-flyers Anooraq Resources and Wesizwe Platinum have been particularly hard-hit which must be especially worrying for Wesizwe which is about to embark on raising R5.6bn to build its new mine.
Wesizwe at current levels around 588c is 67% down on its 12-month high of R17,80 and almost at its 12-month low of 550c.
Anooraq at least owns a producing mine – Lebowa Platinum – but its share price is down 50% at current levels around 1790c compared with the 12-month high of R3590c. Anooraq’s 12-month low is 1700c.
The majors have not been spared and Lonmin dropped to a new 12-month low of R362 last week (previously low R385) before recovering to around R380 this morning. At R380 Lonmin is 33% off its 12-month high of R565.
Lonmin is particularly exposed
because of operational problems with its mechanised mining systems as well as the technical problems with its smelter that have resulted in one missed production target after another.
But Anglo Platinum (AngloPlat) and Implats have also suffered. At current levels around R969 AngloPlat is 34,5% off its 12-month high of R1,480 while Implats is down 36% at R236 from its 12-month high of R368.
Implats has consistently outperformed both Anglo Platinum and Lonmin in terms of working cost control and maintaining production but appears to be coming under pressure because of its exposure to Zimbabwe.
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