Events have refined platinum’s prospects
In the unrelenting news flow about the Covid-19 viral outbreak and global spread, it was easy to miss three important developments in the platinum industry.
The first was the dramatic announcement from Anglo American Platinum (Amplats) that two of its converter plants feeding its refineries were stopped, halting the flow of platinum group metals (PGMs) to the market. Amplats believes 500,000oz of platinum would not reach the market this year.
The second was the development of an SA platinum coin after years of lobbying by the domestic PGM miners. The coin could take a one-fifth stake of a global market of 100,000oz of coins. Sure, it’s a replacement number rather than growth, but for local miners it’s important and could contribute to the investment side of the market.
The third development — one that could have a more fundamental impact on the platinum market than the temporary shortfall in metal output from Amplats and the new coin — is the creation of a three-metal antipollution device by German chemicals group BASF and two PGM miners.
Sibanye-Stillwater and Impala Platinum supported BASF’s work over the past two years to substitute a portion of sister metal palladium in petrol engine exhaust catalysts. Rhodium is the third metal.
The replacement of between 20% and 50% of palladium used in a catalyst will not only ease the growing deficit in the palladium market but also provide an additional source of demand for platinum, which has for years been in surplus.
These are serious developments in the PGM space and for platinum in particular. They should not be ignored.
AIRLINES
Coronavirus has clipped the wings of airlines. Bookings are cratering. Carriers are slashing capacity and suspending flights. In the US, the NYSE Arca airline stock index has slumped more than 30% over the past two-and-ahalf weeks.
The oil price has also crashed. Fuel accounted for about one-fifth of operating costs at the big four US carriers in 2019. Based on Tuesday’s close, Brent priced at $38 a barrel will lower the cost per gallon of jet fuel for US airlines by as much as 55c, says Moody’s Investors Service. That would be a drop of a quarter from the average cost of $2.05 in 2019.
Lower oil prices can be a mixed blessing for airlines even in normal times, stoking overcapacity. And airlines that use hedges to lock in fuel costs cannot cash in on lower prices immediately.
The problem for airlines this time is that revenue falls look set to outweigh fuel savings.
Deutsche Bank is forecasting a 6% slide in revenue for the top seven US airlines this year. That seems conservative. As coronavirus cases proliferate, countries and corporations are imposing travel bans. Consumers are booking far fewer holidays.
US airlines are in better shape to weather the turbulence than some foreign peers. Since the financial crisis, US carriers have consolidated. Balance sheets are stronger, with lower debts and big cash reserves.
Dividend and share buybacks may still have to be put on hold. For the moment the risks of bankruptcy are low. All bets will be off if the coronavirus scare extends late into the year.