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PGM sec­tor fights back

Has the vi­a­bil­ity of the lo­cal PGM (plat­inum group met­als) sec­tor, which is reel­ing from a dou­ble whammy of a brit­tle com­mod­ity price and a chal­leng­ing labour cost en­vi­ron­ment, ever been more open to ques­tion?

Jour­nal­ists who worked at Business Day in the late eight­ies might re­call a mo­ment when prospects for the fledg­ling plat­inum sec­tor were, al­beit briefly, un­der even more se­ri­ous ques­tion. Th­ese were the pre-in­ter­net days and most in­for­ma­tion was spewed out of a Reuters ticker ma­chine.

The Business Day min­ing re­porters were grap­pling with a ru­mour that the PGM sec­tor was un­der threat be­cause a cop­per-based cat­alytic con­verter was be­ing de­vel­oped for the mo­tor in­dus­try.

Spec­u­la­tion swirled wildly around the old Di­ag­o­nal Street trad­ing floor, and by the af­ter­noon the price of plat­inum stocks had started to weaken con­sid­er­ably. More re­porters were hauled onto the story, and fu­ri­ously be­gan phon­ing in­dus­try and sci­en­tific con­tacts. The re­sponse gar­nered was gen­er­ally one of be­wil­der­ment.

But fi­nally a voice boomed in the bustling news­room, con­firm­ing, from a top sci­en­tific source, the plau­si­bil­ity of de­vel­op­ing a cop­per-based cat­alytic con­verter to sub­sti­tute the costlier plat­inum-based stan­dard. The grin­ning re­porter ex­plained to the hushed news­room: “It’s true, it’s tech­ni­cally pos­si­ble to de­velop a cop­per cat­alytic con­verter. But

Mar­ket­ing a com­mod­ity that failed to re­spond price pos­i­tively to a huge pull-back of pro­duc­tion will not be easy

the ad­vice from my source is not to rush out and buy cop­per shares. Rather invest in Ven­ter Trail­ers, be­cause the cop­per cat­alytic con­verter would be so big that the ve­hi­cle would need a trailer to tow it.”

Other than that, the broader PGM sec­tor has for the best part of two decades not re­ally seen in­vestor sen­ti­ment rat­tled in any sig­nif­i­cant way. Un­til now, that is.

Nat­u­rally, prospects for a com­mod­ity will be un­der se­ri­ous scru­tiny when prices don’t re­act to a pro­longed work stop­page that cur­tails pro­duc­tion markedly. The five-month plat­inum strike in Rusten­burg ear­lier this year took roughly 1.3-mil­lion ounces of plat­inum off the ta­ble — around a quar­ter of the South African sup­ply.

The sup­ply-and-de­mand equa­tion is some­what clouded by the mar­ket’s in­abil­ity to fathom the ex­act size of plat­inum stock­piles, though re­cy­cling has been quan­ti­fied at about 2-mil­lion ounces a year.

How in­vestors will per­ceive news that the big six lo­cal plat­inum min­ers on the JSE have set up an in­ter­na­tional coun­cil to pro­mote in­vest­ment in the metal re­mains to be seen. At first glance it’s dif­fi­cult to avoid “car­tel” con­no­ta­tions, although the World Plat­inum In­vest­ment Coun­cil (WPIC) has ob­vi­ously con­sulted lawyers on com­pe­ti­tion mat­ters. But the im­pres­sion might well be that form­ing the WPIC is des­per­ate tilt at gain­ing price lever­age.

With de­mand for plat­inum driven in the main by its in­dus­trial ap­pli­ca­tions it will take a mas­sive ef­fort to bol­ster its in­vest­ment im­age mean­ing­fully.

At least WPIC is work­ing off a low base, with plat­inum pur­port­edly rep­re­sent­ing just 0.02% of to­tal global in­vest­ment as­sets.

But mar­ket­ing a com­mod­ity that failed to re­spond price pos­i­tively to a huge pull-back of pro­duc­tion will not be easy.

Surely some pun­ters be­lieve events may sig­nal a bot­tom­ing out of the plat­inum cy­cle. In that case, one should per­haps for­get plat­inum ex­change-traded funds, and start ac­cu­mu­lat­ing a bas­ket of bar­gain base­ment-priced plat­inum coun­ters.

Pre­sum­ing, of course, there re­ally is still no cost-ef­fec­tive sub­sti­tute for PGMs for the mo­tor in­dus­try.

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