SA, Russia at cross purposes on PGM cartel

[miningmx.com] – PLANS for an Opec-style approach to controlling the world’s platinum supply resurfaced in late May courtesy of a speech by mines minister Susan Shabangu.

“I invite PGM [platinum group metal] companies to work with my department to leverage the relations we have established with the Russian Republic,’ Shabangu said in her budget vote speech in parliament on May 28.

This was a reference to a meeting of minds with Russia’s resources minister Sergey Donskoy at the Brics summit in Durban on March 27 on the platinum market. Discouragingly, it was also part of the “rescue plan’ the South African government has for its precious metals industry.

That’s because a meeting of minds might be overstating how South Africa and Russia understand bilateral talks in respect of the platinum market.

Importantly, Donskoy spoke of joint intiatives to “expand the market’ whilst the South Africans seemed more interested in things like taxes in order to “influence the market’. The difference is that the Russians desire market share whilst South Africa is seeking price control, as well as additional revenue as it would presumably collect from the taxes in its initiative.

For all the chit-chat, analysts don’t think the proposals will fly, notwithstanding an intention by Russia to discuss “mechanisms’ with South Africa in the Northern European summer.

“How are they going to establish a bloc such as this, and how are they going to break existing contracts with the autocatalyst producers?’ said Peter Davey, an analyst for Standard Bank Group Securities (SBG Securities). Albert Minassian, an analyst for Investec Securities described it somewhat economically as “a long shot’.

In any event, forcing the price of platinum up, even were it achieveable, and were it not in contravention of international law, would only force semi-fabricators into substitution. It should not be assumed that platinum is the only imaginable metal suitable for autocatalysis.

These are some one of the obstacles in the way of the proposed platinum cartel. In any event, there are other measures the South African government could take that would be more effective than market manipulation, and more to hand.

It’s a point Michael Kavanagh, a metals and mining analyst at Noah Capital Markets in Cape Town takes up in a note published last month in which he states governments should do “. what governments do’.

“Government should be relieving mining companies of social burdens, developing surrounding cities and towns, providing municipal services and most importantly providing education,’ he says.

He’s also critical of Shabangu’s view in her budget speech that the global economic environment is the persistent fundamental cause of the problems in South Africa’s platinum sector. “We have concerns regarding the minister’s understanding of causality, particularly on the demand side of the equation,’ said Kavanagh.

“References to the “negative effects of the persistent global economic environment’ suggest that she has failed to understand that South Africa has brought the current troubles on itself,’ he said referring to double digit cost increases that “cannot be sustained in perpetuity’.

Ironically, South Africa may end up influencing the market anyway through labour-related work stoppages, especially as biennial wage negotiations near ever closer.

According to Justin Froneman, a platinum analyst at SBG Securities, stoppages could be responsible for a 5% a year decline in production. This would accelerate the draw-down in above market supplies of platinum.

“Our PGM models do however make provision for South African supply production disruptions of approximately 5% per annum; we do however caution that any outages are likely to exceed this estimate,’ Froneman said.