Declining investment by platinum producers in South Africa, the world’s largest supplier, has begun to weigh on supply of the metal used for investment as well as jewellery and autocatalytic converters, new data shows.
Yesterday, the World Platinum Investment Council (WPIC) released data that showed show a market deficit of 520 000 ounces for 2016, from 455 000 ounces forecast in the previous quarter.
South Africa produces about 80 per cent of the world’s supply from the Bushveld region in the north of the country.
Mining is cash-intensive and over the past decade companies have cut back on investment into new production to save costs amid an environment of a stagnating platinum price.
“Our research in 2015 showed that between 2006 and 2015 capital expenditure on platinum mining in South Africa reduced from nearly US$4 billion per annum to below $1bn per annum,” said Trevor Raymond, director of research at the World Platinum Investment Council. “Annual refined platinum output from South Africa was 5.4 million ounces in 2006 compared to the forecast level of 4.19 million ounces in 2016.”
The WPIC noted that the extent to which vaulted investor holdings are available to meet the forecast deficit was shrinking.
Stock levels were down more than 50 per cent since 2012, and positive sentiment has reduced the propensity of holders to sell platinum to meet deficits.
As such, the WPIC said, it was worth medium-term investors taking into account the reduced likelihood of investor sales to meet deficits.
Jewellery remained a key growth market, Mr Raymond said. “Platinum jewellery manufacture in 2015 was 35 per cent of demand.”
He added that platinum jewellery is actively promoted in its main growth markets of China, India and the US by industry bodies such as the Platinum Guild International.
The average platinum price fell to $1,627 an ounce from $2,199 an ounce a year ago, Bloomberg data shows.
Meanwhile demand would be robust this year as overall mining supply would fall 3 per cent, and recycling would probably decline 2 per cent, the WPIC data show.
The overall picture for platinum in 2016, which has enjoyed a significant rebound in price over the course of the first half of the year, continues to be one of supply constraint, robust demand and ultimately a large supply/demand deficit in 2016, Mr Raymond said.
Other leading industry figures have also warned of constricted supply in the years ahead.
“There is an absolute lack of investment in the platinum industry,” Terence Goodlace, the chief executive of the world’s second largest producer, Impala Platinum, told shareholders in Johannesburg at the company’s results presentation on Monday.
Mines typically plan up to 10 years ahead when building new shafts, and the window to meeting increased demand was closing fast.
“We’re not too far from 2020, 2021 and 2022, when supply from this country is going to drop off a cliff,” Mr Goodlace said.
Wade Napier, an Avior Capital Markets investment analyst in Johannesburg, said platinum itself was set to benefit from continued growth in demand against flat supply.
“Overall the outlook is positive for the price, and we expect a material change to manifest by 2018.”
Mr Napier noted that while jewellery sales had “disappointed”, demand for catalytic converters to limit vehicle emissions were likely to grow.
“On the investment side, it’s hard to predict how people will react. At some point investors will want to take profits and this could influence the price at certain points.”
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