SA supply decider for 2008 platinum prices

SA supply decider for 2008 platinum prices
Allan Seccombe (Miningmx)
Posted: Fri, 04 Jan 2008

[miningmx.com] -- SOUTH AFRICAN platinum supply, which disappointed the market in 2007, could do so again this year and remain the key factor keeping the metal’s price strong, said GFMS chairman Philip Klapwijk.

Both metals consultancy GFMS and Johnson Matthey, the leading platinum group metal refiner, agree that problems with South African supply of platinum have resulted in the market moving to a deficit position from an anticipated surplus.

Johnson Matthey expects platinum supply in 2007 to be 135,000 oz lower at 6.66 million oz than 2006, pushing the market from last year’s small surplus to a deficit of 265,000 oz.

The double disappointment

“The big story continues to be the question over South African supplies, now not only the rate of growth of South African platinum production but also the sustainability,” Klapwijk told Miningmx in an interview.

“Last year, there was the double disappointment. Not only was there not growth but production declined a bit. It’s a major disappointment in light of what was expected at the beginning of 2007,” he said.

Klapwijk reckons the gold price will continue to push up from its record-breaking run this week past the 27-year high of $850/oz to $900 in coming months and then on to $1,000 at some point this year.

“We feel platinum prices are likely to go up. It’s difficult to see gold going to $900 and platinum not busting through $1,600/oz,” he said.

Platinum hit an all time high of $1,553/oz this week.

“If there are supply disruptions there is a lot of upside potential in a market where near-market stocks are limited. You can see the high interest rates paid on platinum leases and that’s indicative that there aren’t abundant stocks sitting in Zurich.”

GFMS estimates there are some 40 tonnes of platinum stocks in Zurich and roughly 240 tonnes of palladium.

“There’s relatively little in the way of available platinum stock. If you get mine production falling short that will be a big problem and the price will go up. Some speculators and investors have bought into that, feeling there’s not too much downside and you could get a major spike if there’s any supply disruption.”

The South African government has taken a much tougher stance on mine deaths, enforcing temporary shutdowns of affected shafts, which has reduced production on top of difficulties in bringing growth projects on stream in the current environment of high input costs, delays on long-lead items and overwhelming demand for skilled workers.

Anglo Platinum, the world’s largest supplier of platinum, told the market in mid-November it would produce 150,000 oz less refined platinum than the already reduced target of 2.6 million to 2.65 million oz it set in July this year, primarily because of safety issues.

Anglo American CEO Cynthia Carroll has made safety within the Anglo stable one of the main platforms of her leadership. The first casualty was the surprise resignation of Ralph Havenstein, CEO of Anglo Platinum, after the deaths of 12 miners in the first half of 2007.

Anglo Platinum temporarily closed all its shafts to retrain workers on safety. The platinum price surged on the move as well as in shutdowns later in the year triggered by deaths underground.

Aquarius Platinum has also had a spate of safety-related shutdowns as well as industrial action at its mines, losing its mines a total of 5,000 PGM oz.

“The safety issue has created the joker in the pack and it boils down to this fear that there could be constraints on supply at a time when demand is probably still growing a bit,” Klapwijk said.

The platinum market is not only concerned about supply out of South Africa, the single largest source of the metal, but also the political uncertainty created during the battle that raged within the ruling African National Congress that saw Jacob Zuma elected as president of the party at the end of 2007.

As head of the party, he is the natural choice to become president when the incumbent Thabo Mbeki completes his second five-year term in 2009. Zuma beat Mbeki out of the position in a hotly contested battle that divided the ruling party.

Zuma faces 16 charges in total - one of racketeering, two of corruption, one of money laundering and 12 of fraud – and is scheduled to appear in court in August this year. If the charges are successfully brought against him it could scupper his presidential hopes.

The country’s largest union federation COSATU has issued none-too subtle warnings that it will not tolerate Zuma having to appear in court and said the charges were brought against Zuma, a darling of labour, for political gain by his opponents.

“I think the fears are that production will continue to disappoint in 2008 and there’s the perceived political risk with Zuma winning the ANC leadership,” Klapwijk said, adding he wasn’t convinced the Zuma matter would have an effect on short-term production, but that the impact could be felt in longer-term investment decisions.

The record high platinum prices are causing makers of autocatalysts, the key offtake of platinum, to drive substitution programmes hard to use cheaper metals like palladium, one of the reasons platinum producers are wary of too high a price for their metal.

“There is a will to substitute and do it as fast as possible. Our information is that last year we saw some of this jollied along quite quickly by senior management at at least one car manufacturer,” Klapwijk said.

“On the autocatalyst side you’re seeing in diesel quite a rapid shift due to the spread in platinum and palladium prices towards incorporating palladium in diesel autocatalyst systems,” he said.

The palladium content in diesel autocats has been bumped up to 30% from around 15 to 20%. “My information is that there is a will to move fast to incorporate palladium where it can be incorporated in these diesel systems… Where the car companies have flexibility on this, I think they want to move very fast.”