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.