[miningmx.com] — A STOCKPILE of 4.5m oz of platinum has accumulated in the global market in the past four years, and this would dampen any liveliness in the price of the valuable metal for at least the next two to three years.
“The only solution is a cut in production. I would say a reduction of at least 400,000 oz per year in production capacity is called for,’ said Paul Walker, head of precious-metals research at the authoritative Thomson Reuters GFMS, whose annual survey of the platinum market was released last week.
If this is gauged in terms of a productivity rate of 30 to 40 ounces per worker per year, about 9,000 workers in the platinum sector face the risk of job losses. Walker sketched a sombre future for platinum miners when he released the Thomson Reuters GFMS report to mine owners and analysts in Johannesburg last week.
According to him, disruptions in production, like the strike at Impala Platinum in January and February, as well as the recent trend of safety stoppages – which cost about 300,000 oz in lost production – would do nothing to help the recovery in the platinum price. The accumulated global stockpile and waste metal recovered from car wrecks and the jewellery market absorb such shocks.
“I fear the accumulated 4.5m oz has become an obstacle in the market and can no longer just be shrugged off as a statistical deviation as was the case in the past two or three years. Previously we could ascribe it to factors like the downturn in 2008, but we can’t do that anymore,’ he said.
The revival in the motor industry also did nothing to help the price to recover, because palladium is increasingly being used in place of platinum in diesel engines.
The stockpile of palladium was even bigger, namely 11.2m oz.
Neville Nicolau, CEO of Anglo American Platinum (Amplats), which produces 40% of the world’s platinum, said in February that there would be disinvestment in platinum mines if the current price levels of $1,500 to $1, 700 per oz continued.
“We need a platinum price of at least $1,900 per oz to justify new investments in mines,’ he said at a presentation of Amplats’ results for 2011. “The longer the price remains below $1,900 per oz, the greater the damage being caused to the industry.’
Amplats has reduced its capital expenditure for this year from R9bn to R8bn and has started reviewing its operations. The industry as a whole produced 6.4m oz platinum last year. Of this, 735,000 oz was surplus metal, which pushed the accumulated stockpiles – the sum of the surplus production since 2005 – up to more than 4.5m oz. It’s clear from the Thomson Reuters GFMS report that the surplus has been increasing every year since 2005.
In spite of this, mine production in South Africa increased by small increments every year – except in 2008 when Eskom’s electricity shortages caused production to fall sharply, and Amplats instituted considerable rationalisation. The country provides 75% of the world’s production of platinum group metals.
The biggest surplus was in 2009 when an excess of 929,000 oz was produced. Had it not been for the safety stoppages at South Africa’s mines last year, the surplus would have exceeded 1m oz for the first time. In addition, production costs rose by 11% last year to $1,190 per oz, but in rand terms the increase was even higher at 13%.
These increases are largely the result of labour costs and electricity prices, which increased dramatically. Labour costs represented 40% of total costs last year, as compared with 35% in 2010.
The higher labour costs contributed $72 per oz to unit costs. Electricity prices increased by 28% last year, but since electricity accounts for only 7% of the total cash cost, this only increased the unit cost by $18 per oz.
– Sake24
