Pt market threatened by law?

[] — IT doesn’t take much to disturb the platinum market at the moment. One sniff of supply disruption and the platinum price can be kicked on $10/oz. In fact, so sensitive are speculators to the effect of the higher rand on future supply – about 70% of platinum supply is from South Africa – that it’s expected $1,000/oz will be tested before long.

The platinum price is about 9.5% stronger in the year to date but a third higher since 2003. It was trading at $919/oz at the time of writing.

“The high rand has made it uneconomical for some of the mining houses in South Africa,” said Wrzesniok-Rossbach, head of marketing and sales at the trading unit of Heraeus Holding, a company that refines some of the production out of South Africa, in an interview with Bloomberg News. “More than any other metal my view would be that there’s a strong fundamental case in the case of platinum,’ he said.

It’s against this background that Johnson Matthey, a UK based semi-manfacturer of platinum group metal (PGM) products, such as autocatalysts, has expressed its discontent at Government’s proposed Precious Metals Amendment bill.

The bill was discussed in parliamentary sub-committee meetings last week in Cape Town and is sister legislation to the Diamonds Amendment bill, which has caused greater controversy. The thrust of the Precious Metals Amendment bill is to exert tighter control over exporters of metal products and discourage, where necessary, export of products not semi-produced in South Africa.

As a result, Government wants precious metals exporters to apply for a 10-year licence to export their product. But the bill doesn’t state what criteria finally needs to be satisfied for the licence. Johnson Matthey is also concerned the license should be so short-dated since many of its contracts with auto manufacturers are for 20 years and longer, partly because Johnson Matthey needs to ensure the availability of spares.

“The primary concern for Johnson Matthey is that the requirements to be granted a precious metals beneficiation licence are not contained in the Precious Metals Bill,’ said Gavin Young, MD of Johnson Matthey presenting to the sub-committee.

“There was no certainty about the circumstances under which such a licence would be issued. This impacts on investor confidence, and the ability of JM to comply with its various contractual obligations,’ he said.

Cathie Markus, executive director of Impala Platinum, the world’s second largest platinum producer, said the process might possibly be managed but there are probably better opportunities for making good law.

As for disturbances to the platinum market, analysts are taking a wait-and-see approach, hoping investors will see through the legislation. “It is extra red-tape but I’m hoping its unlikely to have a critical effect of future supply from South Africa,’ an analyst said.

In any event, South Africa produces about 10% of the world’s autocatalysts or over 10 million systems/year, so there’s already an established downstream market for PGMs in South Africa, said Henk de Hoop, an analyst for Barnard Jacobs Mellet. So the platinum market, in particular, is hoping they’ll be less pressure on Government than on the diamonds industry.

Interestingly, however, there seems to be a shifting in the definition of beneficiation. The Rand Refinery’s director for global markets, Chris Kenny, said about 55% of the refinery’s output is “beneficiated’ into granules or gold washers. But in the case of precious metals, Government wants to see more jewellery.

Shareholders of mining companies would prefer to managers to focus on their core competence, said Bernard Swanepoel, Harmony Gold CEO. “Breaking rock at the mine is a very different activity to producing jewellery.’