Palladium prospects given qualified support
Julie Bain | Tue, 03 Sep 2013 12:01
[] – PALLADIUM is outshining its more expensive bedfellow, platinum, as a pick-up in demand for its use in autocatalysis, a drop in sales from Russian stockpiles, and a decline in production at Russian miner, Noril’sk, underpin the metal.
The positive outlook for palladium does come with a warning, however.
In a recent note, Macquarie Research analyst, Matthew Turner, said that the uncertainty over the size of Russian stocks could “dampen price appreciation”. Much also rested on Chinese car sales growing rapidly. “We think they [car sales] will, but the risks are rising,” said Turner.
Platinum group metal (PGM) prices have been under pressure with platinum falling more than palladium. Both metals were in deficit in 2012, says speciality chemicals group, Johnson Matthey, in its 2013 review. For the last 12 months, the platinum price averaged $1,522 per ounce while palladium averaged $643/oz.
The jury is still out on whether the market will see a deficit in both metals this year. The global slowdown, in particular in Europe, has knocked platinum demand.
To some extent, any deficit in platinum particularly hinges on whether wage negotiations among South African platinum miners leads to protracted strike action. That would in turn hit production, perhaps pushing the market into deficit. Any deficit is unlikely to push prices up.
In its latest market review, Aquarius Platinum said: “Autocatalyst platinum demand remains challenging with lowest vehicle sales in May for 20 years. Jewellery demand will likely have increased with the recent US dollar metal price drop, but more so for gold than platinum.
“Primary supply remains steady, with capacity cuts yet to be enacted, and a relatively low amount of operational disruption, apart from the continued usage of Section 54 notices. Secondary supply from recycling is also likely to have fallen with prices.”
Aquarius CEO, Jean Nel, told Miningmx a platinum deficit was likely again this year. “As has been widely reported in the press, events last year (2012) - the suspension of operations at various mines and industrial action – all helped to curtail supplies of newly mined platinum so that the market ended the year in deficit,” Nel said.
“This was in contrast to the widely forecast supply that had been expected earlier in the year. It would seem that the supply and demand fundamentals are not that different for 2013/4,” he said.
Aquarius Platinum, in a recent market summary, said the fortunes of platinum were bound to gold.
“The reasons for gold’s dramatic price drop (and parallel reaction in platinum) at the start and end of the quarter, include the breaking through of technical levels and a tapering of quantitative easing expectations from the US Federal Reserve.
“However, the movements in gold and platinum exchange traded funds (ETFs) have been in opposite directions. Since mid-May over 500,000 oz have been added to global platinum ETF holdings (35% increase) in anticipation of operational disruptions in South Africa, while gold ETFs sold 14 million oz (an 18% decrease).”
Chris Griffith, CEO of Anglo American Platinum (Amplats), said that in the short term, the market looked balanced. On a fundamental basis, however, he sees over-supply which would put underlying pressures on the profitability of platinum companies. “In the next three years, we will see an increase in the demand for PGMs of 3-4% compound annual growth for the group, and 3% for platinum,” Griffith says.
If the restructuring of Amplats’ receives the approval of stakeholders in South Africa, about 250,000 oz of production may disappear, along with 6,000 jobs. But until the European economies pick up significantly, this is unlikely to impact the platinum price on the upside.
Furthermore, Lonmin said in its latest production report that it mined 2.9 million tonnes of ore in the third quarter of 2013 representing a drop of 3.6% on the previous year’s production.
Like Griffith, analysts maintain that the longer-term outlook for PGMs is positive. Says Turner: “European car sales appear to have bottomed out and new emissions regulations will require more platinum per vehicle… Even gold doesn’t seem to have too much more downside. Put these factors together and platinum should move into an underlying deficit in 2014, with solid price gains that year and next.”

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The emphasis on the Serra Sul iron ore mine comes as Guinea struggles to maintain foreign investment amid deepening political turmoil, labour unrest and a government review of mining contracts
Author: By Sabrina Lorenzi
Posted: Wednesday , 26 Sep 2012

Vale, the world's second-largest mining company, is likely to make its $19.5 billion Serra Sul iron ore mine project in Brazil a priority over a similar development in the West African nation of Guinea, a source with knowledge of the firm's strategy said. The emphasis on the project in the Amazon comes as Guinea, which holds rich deposits of iron ore and is the world's top supplier of the aluminum ore bauxite, struggles to maintain foreign investment amid deepening political turmoil, labor unrest and a government review of mining contracts. The granting in June of a so-called preliminary environmental license for the Sierra Sul project, which includes railway and port investments, means the development of the Simandou site in Guinea is less urgent, the source said on Tuesday. "All things considered, projects need to be prioritized," said the source, who asked not be named as his employer does not allow him to speak to the press. "The priority has become Serra Sul."
Serra Sul is an extension of Vale's giant Carajas iron, copper and nickel mining complex in Brazil's Para state. It is expected to have a capacity of 90 million tonnes a year, about 9 percent of current world iron-ore exports, helping maintain Vale's position as the No. 1 producer. Simandou, while holding enormous high-quality reserves, faces major political, commercial and transportation hurdles before it can be developed.
Guinea recently revised its mining code, raising the state's mandatory stake in mining projects to 35 percent from 15 percent and plans to change other clauses in the code after consultation with mining companies. "I believe it will be difficult for Vale to invest in both projects at the same time because it would require very high capital spending for the company," said Marcelo Aguiar, metals and mining company analyst with Goldman Sachs in Sao Paulo. "Vale investment in Simandou appears to have lost a bit of its urgency after getting the license for Serra Sul." Vale gained the rights to develop iron ore in Simandou in 2010 when it agreed to pay $2.5 billion for a 51 percent stake in the Guinea iron-ore mining operation of BSG Resources Ltd, the London-based mining group controlled by Israeli businessman Beny Stenmetz. A newspaper in Brazil reported on Sunday that BSG was preparing to sue investment bank BTG Pactual, which it accuses of misusing its role as an adviser to Guinea's government to win licenses for a holding company at BSG's expense. Guinea's mines minister Mohamed Lamine Fofana called BSG Resources threat to sue BTG "insulting" in an e-mailed response to questions from Reuters.
The Serra Sul mine is at the center of plans to boost Vale iron ore output by 40 percent to 460 million metric tonnes a year in 2017. Serra Sul and Carajas are two of the largest high-grade iron ore projects under development to meet soaring demand for iron ore from China. Vale produces more than a quarter of the world's sea borne iron ore exports of more than 1 billion tonnes a year. Work to gain the preliminary Serra Sul license took nearly a decade. Vale, though, has been re-evaluating its investment plans in the wake of a slowdown in China and sluggish growth in the United States, Europe and Japan. In late 2011, it cut planned 2012 spending 11 percent to $21.4 billion. As iron-ore prices fell to three year lows earlier this month, slashing billions from revenue, further cuts came under consideration.
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