SA’s platinum output at risk

• Report forecasts larger global surplus but local miners face shaft closures as they remain cash negative

As the global platinum market moves into a large forecast surplus in 2018, metal output from SA, the world’s single largest source, is under growing risk of mine closures, according to Johnson Matthey’s latest report.

As the global platinum market moves into a large forecast surplus in 2018, metal output from SA, the world’s single largest source, is under increasing risk of mine closures, according to Johnson Matthey’s latest report.

Released during London’s Platinum Week, the report showed the market surplus tripling to 316,000oz during 2018 as primary mined supply stayed flat and record demand from industrial consumers in 2017 continued to grow.

Of major importance to the market is the outlook for SA, which is the dominant player with production of more than 4-million ounces of platinum a year out of total mined supply of 6-million ounces. The outlook is less than rosy, the report noted.

“Although we believe that the short-term production outlook for the South African PGM [platinum group metal] industry is broadly flat, there are increasing risks to output going forward,” Johnson Matthey said.

“The rand-denominated value of a typical basket of South African PGMs appreciated significantly during the second half of 2017 but has since fallen back to levels similar to those seen in early 2013,” it said.

“This has put producers under intense financial pressure and has increased the likelihood of another round of shaft closures, particularly at older mines on the western Bushveld,” it said, referring to the mines near Rustenburg.

JPMorgan Cazenove also sounded a warning a few weeks ago and repeated it at the start of Platinum Week.

“On the supply side we identify dysfunction as SA accounts for 70% of global mine supply yet at current prices we estimate about 60% (2.6-million ounces) of South African mines are cash flow negative.

“Our mine-by-mine analysis indicates about 65% of SA and Zimbabwe mine supply will remain cash negative in 2020,” JP Morgan said on Monday.

Johnson Matthey forecast SA’s platinum output would fall slightly to 4.41-million ounces this year from 4.459-million ounces in 2017, when mined supplies were boosted by sales from inventories.

Mined supply from SA in 2017 was just below 4.4-million ounces, the report said.

Lonmin CEO Ben Magara said on Monday the cutbacks in production from unprofitable mines were almost immediately filled by low-cost producers, meaning there was no substantial change in the supply and demand fundamentals and improvement in prices.

Lonmin is one of the companies that has unprofitable mines and it forecasts output will fall to 600,000oz when it has completed a three-year restructuring to close old mines and lay off 12,600 people. A few years ago it was a 750,000oz a year platinum miner.

“Gross demand for platinum exceeded 8.1-million ounces in both 2015 and 2016, but fell back to 7.96-million ounces in 2017, despite a record year for industrial consumption,” Johnson Matthey said.

While there has been growing negative sentiment towards diesel vehicles, primarily in Europe, the numbers of platinum consumption were “relatively stable” and fell just 1% to 3.29-million ounces. Platinum is used in diesel autocatalysts.

Industrial consumption has grown increasingly important for the metal, rising to a record 2.018-million ounces in 2017 from 1.8-million ounces in 2016. It is forecast to rise to 2.08million ounces in 2018.