[miningmx.com] — Platinum’s supply side remains constrained,
Investec Asset Management (IAM) said on Thursday.
IAM’s commodities team said supply side constrains, combined with rising
industrial and investor demand for the precious metal, could see platinum and
palladium markets move into a balanced position and later a deficit.
This points to higher commodity prices.
IAM said due to South Africa’s material influence on the global platinum
fundamentals, with South African producers accounting for 78% of global producer
supply, it was important to understand domestic political, power, water, labour, grade, safety and operating environment concerns.
“While recent financial results from major South African platinum producers
mostly delivered on guided production volumes and provided positive outlooks on
PGM prices, we believe the supply side remains constrained,” said IAM.
Notwithstanding the continued rise of the Rand PGM basket, South African
producers are struggling to grow volumes.
Approved electricity price increases of 25% per annum over the next three years, labour cost increases and water shortages and potentially a strong Rand should continue to keep domestic costs elevated for the foreseeable future.
“We are forecasting medium and long-term growth in supply from South Africa,
but it is important to note that this growth emanates from the tier-2 and junior
producers. Given the inherent difficulties in ramping up PGM production, including
junior financing concerns, we contend that the risk to our supply growth forecast lies to the downside, placing additional pressure on our forecast deficit positions,” IAM said.
Structural issues concerning likely substantial increases in the underlying cost of future PGM production in South Africa mean that supply is likely to remain flat in the short term, the analysts added.
New PGM supply, in the meantime, is likely to lag given the long lead time
associated with new output and the safety and technical difficulties associated with building new supply.
“As such, our platinum and palladium models revert into fundamental deficit
positions by 2011 and 2012 respectively,” IAM said.