PwC warns of platinum shortage
Cites lack of investment in the industry
AUDITING firm PricewaterhouseCoopers (PwC) has warned that the platinum industry was unlikely to meet the demand for the precious metal in the medium term.
The firm yesterday released a report claiming that the supply would be subdued as a result of a lack of investment in the industry.
The report was in line with previous studies on the platinum industry that noted that a deficit in platinum supply would deepen.
Andries Rossouw, PwC’s partner in assurance, said the lack of investment due to the low price environment and industrial action from 2012 to 2014 would continue to put pressure on the existing supply deficit. “South Africa’s platinum miners had to cut costs and reduce capital expenditure in order to survive in the hope that normality will return to the platinum sector,” he said.
The report notes how despite substantial investment in platinum mines in the last 15 years, supply had been on a downward trend since 2006. It said the levels of investment started decreasing as far back as 2008 in contrast to capital expenditure by the overall global mining industry, which only started decreasing in 2013.
“Platinum miners’ struggles are not dissimilar to those flowing throughout the South African mining industry – cost pressures… declines in commodity prices, and low or negative profit margins.
“Low margins have meant that platinum companies have often not been able to fund existing development commitments from cash generated from operations. Cash that could otherwise have been used for new developments was used for survival during the prolonged industrial actions in 2012 to 2014, resulting in weaker balance sheets,” said the report.
Earlier this month the World Platinum Investment Council adjusted the supply deficit forecast for 2016 upwards by 16 percent or 65 000 ounces, to 520 000 ounces from the 455 000 ounces forecast at the end of the first quarter.
The World Platinum Investment Council, which was established by six mining companies to drum up investment in platinum,
South Africa’s platinum miners had to cut costs and reduce capital expenditure in order to survive.
said research by the SFA (Oxford) led it to revise its guidance.
The council report showed that while total demand for the full year of 2016 would marginally increase, total mining supply would fall by 3percent.
South Africa provides more than 70percent of primary mined platinum supply and more than 55percent of total supply, including recycling.
The local conditions have therefore impacted significantly on global supply and are likely to affect the platinum price.
The demand for platinum was largely from the autocatalysts (40percent), jewellery (34percent) and general industrial demand.
According to the PwC analysis, the global drive to reduce carbon dioxide emissions in the automotive industry would support the demand for platinum group metals on the one hand but it could also reduce it on the other.
“Amid the difficulties, a number of junior companies had no option but to put projects on care and maintenance or to dispose of their projects,” the report said.
“Even the major producers have been forced to reconsider marginal mines, which has resulted in closures or early retirements of shafts.”