Curb­ing plat­inum out­put - too lit­tle, too late?

The out­look for the plat­inum group me­tal (PGM) mar­ket still looks de­cid­edly cloudy, although there are some signs that SA pro­duc­tion may be cur­tailed by next year – a be­lated re­sponse to poor de­mand and high in­ven­to­ries.

Finweek English Edition - - IN THE NEWS - BY DAVID MCKAY ed­i­to­rial@fin­

Ac­cord­ing to a re­port by the World Plat­inum In­vest­ment Coun­cil ( WIPC), a n or­gan­i­sa­tion cre­ated to pro­mote plat­inum us­age and im­prove mar­ket trans­parency, cap­i­tal tight­ness among pro­duc­ers could see out­put fall by some 600 000 ounces by 2016.

“Plat­inum pro­duc­tion f rom SA de­clined by over 500 000oz/year, or 11%, from 2008 to 2013,” said Trevor Ray­mond, di­rec­tor of re­search at WPIC. “Over the same pe­riod an­nual cap­i­tal in­vest­ment de­clined by more than 40% to R17bn a year in the sec­tor,” he said.

Cap­i­tal in­vest­ment in 2014 was R13bn and pub­lished cap­i­tal in­vest­ment for 2015 is R11bn. “Us­ing the rate of cap­i­tal ex­pen­di­ture alone as an in­di­ca­tor of likely fu­ture out­put, re­fined plat­inum out­put from SA will fall by an es­ti­mated 16% be­low the 2015 level in 2016,” he added.

There is some agree­ment that out­put cuts are fi­nally be­gin­ning to take shape.

“Pro­duc­ers have be­gun to cut pro­duc­tion, cost and capex and to de­fer projects,” said Christo­pher Ni­chol­son, an­a­lyst at RMB Mor­gan Stan­ley. “We es­ti­mate about 300 000 to 700 000 plat­inum ounces are at risk over the next 12 to 24 months,” he added. SA’s pro­duc­tion base is about 4.2m plat­inum ounces.

An ex­am­ple was the re­cent de­ci­sion of Royal Bafo­keng Plat­inum (RBPlat) to de­lay cap­i­tal spend­ing on its Styldrift pro­ject which was to add 300 000 ounces to its out­put – a dou­bling – un­til the mar­ket had re­vived. It is one of the first plat­inum com­pa­nies to sug­gest that the cur­rent slump in the PGM mar­ket may ex­tend well be­yond 2015. Said An­drew Byrne, an an­a­lyst for Bar­clays Cap­i­tal: “While these (RBPlat) an­nounce­ments have lim­ited im­pact on plat­inum pro­duc­tion ex­pec­ta­tions for 2015-2017, it does mean that the medium-term sup­ply-de­mand dy­nam­ics of plat­inum are tight­en­ing, with these de­ci­sions likely to see about 400 000 ounces (5% of global sup­ply) of pro­duc­tion re­moved from fore­casts.”

What’s in­ter­est­ing, how­ever, is that while de­mand may be ta­per­ing over the next two years, the bal­anc­ing side of the equa­tion – the health of plat­inum sup­ply - re­mains equally, if not more, dif­fi­cult to pre­dict.

Com­ment­ing on s up­ply c ut s , Ni­chol­son said that they may not be enough to tighten the mar­ket in the medium term. There is un­cer­tainty about the ex­tent and du­ra­tion of the down­turn in auto and jew­ellery de­mand for plat­inum in the Euro­pean mar­ket, while there is also the dan­ger of “broader sec­u­lar con­cerns” (not cycli­cal but per­ma­nent) in Euro­pean diesel de­mand for au­to­cat­a­lysts, es­pe­cially as there’s a move to­wards sourc­ing al­ter­na­tive tech­nol­ogy.

Added to this is the ques­tion of the amount of above ground stocks of plat­inum, thought at the last count to to­tal about 2.6m ounces. Steve Phiri, CEO of RBPlat, com­mented at his firm’s re­cent in­terim re­sults pre­sen­ta­tion that stocks were “tick­ing up again.”

It should be no great sur­prise that the re­main­der of 2015 and 2016 should prove one opac­ity af­ter another for the PGM mar­ket; af­ter all, this has been the case for the pre­vi­ous three years with ma­jor sup­ply and de­mand shocks in each of 2012, 2013 and 2014 mak­ing it dif­fi­cult for pro­duc­ers to call the mar­ket – an in­sight in­trigu­ingly ob­served by Bar­clays’ an­a­lyst Byrne.

The Marikana dis­as­ter in 2012 and as­so­ci­ated strike cur­tailed some 500 000 ounces in plat­inum sup­ply, which was fol­lowed in 2013 by a sur­prise de­mand for some 1m ounces of plat­inum as ex­change trade funds took hold. There was also the build-up of 600 000 ounces in in­ven­to­ries that helped plat­inum con­sumers sit out the 2014 strike in which some 1.4m ounces of sup­ply was held back.

For some, SA’s plat­inum in­dus­try restruc­tur­ing just can’t come quickly enough, or may never come ow­ing to gov­ern­ment hos­til­ity to sup­ply cuts and in­evitable job losses.

Said Investec Se­cu­ri­ties in a re­cent note: “Given the cur­rent labour sit­u­a­tion in SA we can­not see the in­dus­try be­ing able to re­struc­ture, cut pro­duc­tion and save it­self. This is like watch­ing a crash in slow mo­tion with noth­ing that can be done to stop it.”

CEO of RBPlat

Steve Phiri

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