[miningmx.com] – MANAGEMENT at Johannesburg-listed Pallinghust Resources must be left scratching its collective head at the recent activity – or lack of it – in the platinum market where some five months of strikes among the major producers has left barely a mark on the price of the metal.
It’s estimated some 1 million ounces of platinum production has been delayed by the now ended strike that affected the Rustenburg mines of Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin.
Add to that the 1 million ounces of metal that has been absorbed by the creation of the platinum exchange traded fund NewGold Platinum, and there’s real apprehension regarding the size of inventories of the metal.
“Following almost four months of disruption and around 1 million oz of lost production, prices remain below $1,500/oz suggesting a looser market that many expected,’ said Goldman Sachs in a report dated May 29.
It believed that with the resumption of mining by the platinum producers – which could take some three months to occur – the platinum price would trend down to $1,350/oz, below consensus for the year.
“We believe this is the result of companies having built up large inventories, higher than expected above ground stocks amongst end-users, weaker than expected demand and continuing supply from primary and secondary sources,’ it said.
The bind for Pallinghust Resources is that it raised the prospect of listing its platinum business Sedibelo Platinum Mines this year, although it has recently pared expectations to “when the market is right’.
The question is whether the market will ever be right in the short term for a listing of a new platinum firm, or whether Sedibelo’s debut may be on hold for longer than Pallinghurst would prefer.
Pallinghust Resources, which is run by Brian Gilbertson, a former CEO of Billiton and BHP Billiton, and Arne Frandsen, formerly a banker with JP Morgan, has declared itself in harvest mode after establishing a number of business about seven years ago in sectors it considered unloved or with assets that merely needed better attention.
An uncooperative platinum market may disturb Pallinghurst’s harvest plans, however, although Goldman Sachs added in its report that the future success of platinum ventures will depend on their mechanisations and consequent low cost of production.
The intention is for Sedibelo to become a 1.2 million ounce/year platinum group metals producer. It is making money, Frandsen has said in the past. He couldn’t be reached for comment for the purposes of this article despite repeated attempts.
So why didn’t the platinum price respond to the cut in production? Goldman Sachs believes the level of inventories held by Amplats, Implats and Lomin is some 16%, 12% and 25% more than average inventories respectively than in the previous four to five years by the companies.
Secondly, above-ground stocks of the metal and supply from the so-called secondary market – recycling of platinum – has also contributed to keeping the platinum price in check.
According to Standard Bank Group Securities, platinum recycling is a massively growing industry and is expected to increase to 1.3 million ounces in 2020 from 991,000 oz last year. The increase in the recycling of palladium, a sister metal to platinum, is larger still at some 1.9 million oz last year rising to 5 million oz in six years.
“This makes global palladium recycling the single largest supplier of metal to the market by the 2020 calendar year,’ it said. “The secondary supply of platinum group metals (PGM) in relation to total global PGM production, including recycling, is set to increase from 20% in 2013 to 31% by 2020, it said.
There is also the issue of slower-than-anticipated demand growth for platinum in cars exhausts. Emission control legislation requiring higher use of PGMs in autocatalysts is on the agenda in Europe, but Goldman Sachs believes demand for new cars is not at former levels while the costliness of the more stringent autocatalysts would be passed on to end-users by the automanufacturers.
This would see the man-in-the-steet opting for cheaper gasoline run automobiles rather than diesel units where platinum is more intensively used in autocatalysis, it said.
