Expecting relief
At below US$1 000/oz, the price of platinum has plunged to levels last seen six years ago, at the height of the global economic recession. Certain industry stakeholders are pointing to an imminent turn for the better, and a correction cannot come soon enough for some of SA’s major producers, such as Anglo American Platinum and Lonmin.
The two companies have pressing issues that only a higher platinum price can address.
Amplats has struggled to find suitable buyers for some of its older mines in the Rustenburg area for over a year now. Lonmin has been suffering from what seems to be a loss of confidence by its investors. Glencore, its single-largest investor with almost a quarter of the shares, unbundled its Lonmin holdings to its own investors in June. Since then the stock has been in free fall, losing half its value to the current R14,75/ share. Whereas the company commanded a market capitalisation of almost R35bn in February last year, its market value has now been whittled down to just over R9bn.
But this week, in a conference call, Amplats CE Chris Griffith indicated that there was a glimmer of hope for the platinum industry and that the bottom of the market was in sight. “We are seeing indications of growing demand for platinum,” he told investors. He said demand for the metal would be positive for the remainder of this year, and supply would remain in deficit, albeit a small one.
He is cautious, however, not to be overoptimistic in his view of the market, and admits that there still is a downside risk to the price.
The World Platinum Investment Council expects an uptick in future demand in the EU from the introduction in January of the Euro 6 emission standards for light duty diesel vehicles, as well as from a 3% rise in vehicle production in Germany last year. The council expects 3% growth in demand for platinum for this year — the same rate as last year.
Euro 6 follows the implementation of other pollutant limits. It is expected that such tightening of rules will continue. Without platinum group metals the desired reactions in the catalytic converter of certain engines cannot take place, and this would result in the vehicle not being in line with the emissions regulations.
Higher platinum demand over the past 20 months has eaten into above-ground stockpiles, which were accumulated when platinum prices were way more lucrative. “Those will be down to insignificant levels during the next 12-18 months,” says Sibonginkosi Nyanga, an analyst at Imara. “Platinum price fundamentals are looking bright. We have to see a platinum price correction soon.” For the past three years already, the world has been consuming more platinum than could be produced, according to Nyanga.
Meanwhile, both Lonmin and Amplats have reduced investment in capex and announced job cuts. During the March quarter, Lonmin CE Ben Magara said the company had achieved an average sales price of $936/oz, which was 7,3% lower than the prior year.
“We are planning on the basis that the current depressed pricing environment will persist for around two years,” he says.
As a result Lonmin plans to cut 3 500 jobs, representing about 10% of its total workforce.