SA’s platinum looks to regain lustre after dim decade
Drive for greener cars could provide good as well as bad news
● SA’s platinum mining business is the story of a big party and a heavy hangover for which the industry finally thinks it might have a cure.
After a tough decade for the industry, Royal Bafokeng CEO Steve Phiri is one of the leaders who believe SA should consciously create a market for platinum.
Phiri was part of a panel discussion this week at the Joburg Indaba, a conference showcasing SA’s mining sector. And with SA sitting on the bulk of the world’s known plati-num reserves and employing more than 160,000 people, the industry’s health is always part of the mining discourse.
More than a quarter of the demand for platinum is from car manufacturers, which use the metal in catalytic converters to limit emissions harmful to the environment. But the demand for fuel combustion engines is under threat from electric vehicles as climate change worries become a larger issue for consumers.
And even among those still willing to burn fossil fuels, platinum has its own problems as it is used in diesel engines, a part of the market that is still reeling from the scandal that broke four years ago when it emerged that carmaker Volkswagen had been cheating on its emissions tests.
The impact of the scandal on the platinum producers’ results is clear. The other metals mined alongside platinum are contributing more to revenue than platinum at both Impala and Anglo Platinum. It’s the case of two junior brothers outshining the senior, as platinum, palladium and rhodium are all platinum group metals.
Both palladium and rhodium are used in the catalytic converters of petrol engines, which are picking up some of the slack after VW’s diesel-induced woes did so much damage to the demand for diesel-powered cars. Also, the US and Chinese economies, where petrol (or gasoline as the Americans call it) is more popular, have been growing at a steadier clip than Europe, where diesel is the fuel of choice.
Industry bigwigs talk about the “basket price”, which refers to the mix of metals that are all mined together and then sold. Palladium and rhodium’s share of the basket has been growing; platinum’s declining.
And this has its roots in the platinum boom of the previous decade.
In the last years before 2008’s global financial crisis, mining companies overindulged in new projects, “chasing ounces” in industry-speak, and paid out handsome dividends.
And who could blame them? The platinum price was in the midst of a multi-year rally, breaking $2,000/oz on the back of that lively demand in the auto industry.
But the global financial crisis — which started with a bank scare but soon spilt over into the real economy — slashed the platinum price to less than half of its pre-crisis level in a very short space of time.
“It was the first time that long-term [platinum] demand was not so certain any more,” said Nico Muller, CEO of Impala Platinum.
It was not the first time the price had plummeted, but previous downturns had always been followed by lasting recoveries. This slump lasted for a decade, said Muller. Several factors played a role.
First, there was the worldwide recession that accompanied the crisis. Consumers are much less likely to buy new cars when they fear for their jobs in a struggling economy. And these fears persisted in Europe even after the crisis, as it became clear that several governments had to take some tough medicine to sort out their debt problems.
Their austerity knocked on into consumer behaviour and weighed on diesel vehicle sales.
All the while, platinum recycling operations were gathering steam — so much so that by the middle of this decade, recyclers in aggregate were producing as much of the metal as Anglo Platinum, the world’s largest miner at the time.
Add Volkswagen’s “dieselgate” scandal to this and the result is that the metal’s price is still hovering below $900/oz.
The problem, said Arnold van Graan, mining analyst at Nedbank’s corporate investment bank, was that SA’s platinum mining companies did not act quickly enough when times got tough. Everyone was holding out for a recovery in the platinum price, but it never really happened.
The basket price and the weak rand are now providing some relief, but the rally of the past six months will be only temporary if producers do not stay the course of the past few years and keep closing unprofitable operations, according to Van Graan.
Sibanye-Stillwater, the world’s largest platinum producer, last week announced that more than 5,000 jobs could be cut at the operations it acquired when taking over Lonmin earlier this year.
This comes just as the entire industry and its workers are negotiating a new three-year wage deal. The Association of Mineworkers and Construction Union (Amcu), the largest union among platinum miners, this week said it has the mandate from its members to push for R17,000 a month. While it is not entirely clear over which timeframe it wants this to be implemented, it is an ambitious demand.
After a five-month strike in 2014, Amcu eventually accepted a deal that had the longterm goal of bringing the workers’ pay to R12,500 a month.
But with labour representing 50%-60% of costs at most platinum mines, granting steep increases would hurt producers and could be the wrong cocktail after a long hangover.
This is why platinum producers are looking for new ways to boost the metal’s uses and the demand for it in the long run.
While not in vogue at the moment, platinum has the potential to be very popular as one of the components of hydrogen fuel cells, according to Phiri. Hydrogen fuel cells are a green alternative to electric vehicles and the industry is now supporting some initiatives to develop and commercialise the technology.
While the more widespread adoption of electric vehicles will chip away at an important market for platinum group metals, it is not such a big threat over a five-year period, said Van Graan. And the hype around electric vehicles could even benefit hydrogen fuel cell technology as climate change worries mobilise more resources for research.