Potential disruption of platinum production in SA, the single largest source of the metal, could deepen a global deficit of the industrial and precious metal this year, Johnson Matthey warned in its latest market report.
SA dominates global supply of platinum group metals (PGM), accounting for more than two-thirds of platinum output, more than a third of palladium and more than 80% of its rhodium, meaning developments on its mines and at its processing plants and refineries are closely monitored.
In its PGM market report released on Thursday, Johnson Matthey noted the global platinum market would fall into a 127,000oz deficit during 2019 from a 372,000oz surplus in 2018.
SA is forecast to deliver 4.565-million oz out of the 6.189-million oz of total mined supply in 2019, the country’s highest output since 2015.
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However, Johnson Matthey sounded a note of caution on wage talks due to start at major producers in coming months and the potential for strike-related production disruption and the negative consequences of repeated power shortages as SA experienced in February and March.
Anglo American Platinum and Impala Platinum, the world’s two largest sources of the metal, released data showing their combined losses of metal were valued at close to R2bn during the first quarter.
Investors in SA and elsewhere bought 700,000oz of platinum-backed exchange-traded fund products in the first quarter of 2019, with Johnson Matthey pointing to a potential substitution of the metal into palladium-based autocatalytic converters in petrol engines because of the spike in palladium prices.
“The outlook for PGM mining in SA is increasingly uncertain, with producers facing steep increases in electricity prices, periodic disruption to power supplies, and a risk of industrial action during forthcoming wage negotiations,” Johnson Matthey said.
“The result has been a dramatic turnaround in sentiment, particularly among European and South African ETF investors, who together bought 637,000oz of platinum between January and March 2019. This appears to be net new investment in PGM, rather than investors switching out of palladium into platinum,” it said.
In the market for rhodium, which is also used in auto-catalytic converters, SA producers could supply 652,000oz, a 10-year peak, as miners released pipeline stocks of the metal.
“However, with major South African producers due to conduct wage negotiations this year, the downside risk is also greater than usual,” Johnson Matthey said, tempering its longer-term outlook.
“Looking further ahead, rhodium supplies from South Africa are forecast to contract as shaft closures at Lonmin and Impala Platinum are implemented, and as some other UG2 operations near the end of their lives. The UG2 reef is richer in rhodium than other PGM ores mined in South Africa, so the depletion and closure of UG2 operations will be particularly significant for supplies of this metal.”
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