LONDON -
The platinum group metals prices are relatively robust in the wake of the EU debt agreement, in a relieved reaction to an end, if not of the problems as a whole (some way to go yet), but at least of the latest chapter, especially the fact that the agreement is a proactive deal that should relieve some of the pressure on the weaker economies and, by extension, on the region as a whole. Platinum has continued its move towards $1,800 while palladium has moved above $800 to fix at $805 on the morning of 22nd July.
This is not the whole story; the platinum price is also finding support from the increasing tensions in South Africa, which have extended not just across the mining industries but also now to Eskom, and unions and employers find themselves at some distance. The National Union of Mineworkers (NUM) has declared disputes at Anglo American Platinum Ltd., Impala and Northam, although this does not necessarily imply a lack of goodwill; a dispute has legally to be declared in order to allow for strike action. The NUM has approached members at Anglo for a strike mandate.
Market analysts are largely in agreement that palladium will be in a deficit this year, but the views are more disparate with respect to platinum. Johnson Matthey is expecting platinum to be "close to balance" this year, while GFMS expects a "further significant gross surplus". Both houses recorded surpluses for platinum in 2009 and 2010, although JM had the market in a small deficit in 2008 and GFMS pegged the market in a surplus. It is worth noting here that JM analyses purchases and sales, while GFMS looks at underlying supply and demand and so any disparities between the two houses' figures are probably smaller than would appear at first glance.
Either way, the recent developments in the platinum fundamentals have prompted renewed price strength and so the fundamental make-up of the market bears scrutiny. These figures refer to the GFMS analysis of 2010:
On the supply side; South African mine supply overall amounted to 4.75M ounces of platinum last year, equivalent to 77% of world primary output and 62% of world refined production. Similarly this was equivalent to 71% of world refined demand. Anglo Platinum Ltd's production was 1.99M ounces last year, that of Impala 1.27M ounces and Northam, 150,000 ounces.
Between the three of them, therefore, these companies accounted for 3.4M ounces of platinum production, equivalent to 44% of world refined platinum production or 51% of refined demand.
The NUM's wage demands at Anglo American Platinum and Impala vary between 13% and 14%; Anglo has offered 4.6% and Impala has offered 6.5% for the lowest paid workers. There are also some discrepancies over the time horizons; Impala, for example is talking of a three year agreement, while the NUM is looking for just one year's duration. At Northam the NUM has asked for a R1,000 per month rise, which is close to 20% of labour costs.
Meanwhile Eskom, the State power utility, has raised its offer to 7% (from 5.5%), while Eskom is asking for 16%. The underlying problems at Eskom are longer-lasting, with the Chief Executive concerned about sustaining reserves through 2012, although he has been quoted to the effect that load-shedding is unlikely this year.
On the demand side, the European auto sector is a significant consumer of platinum, because of platinum's dominance in the treatment of emission gases from diesel engines (although palladium is increasingly encroaching on platinum's dominance as fuel technology develops) and the high diesel penetration within the EU automotive market. The EU autos sector accounted for 1.45M ounces last year, or 22% of world platinum demand, while the EU as a whole took up two million ounces last year, or 30% of world demand.
Chinese demand, meanwhile, looks steady rather than bullish. Chinese jewellery was 1.18M ounces, or 18% of world demand. It appears that Chinese consumers have been gradually becoming accustomed to higher platinum prices, and may well, therefore, remain an important fulcrum of the platinum market. Whether, in the current domestic economic environment, they are likely to accept much higher prices, may well be open to doubt.
Given the above figures it is understandable that the platinum market is increasingly nervous about the possibility of a hiatus in supply; equally, however, the increase in above-ground stocks over recent years suggests that, unless there is strike action, and that it is relatively prolonged, the market should not become uncomfortably tight. A short term boost may well develop if, as it has been suggested, some NUM workers walk out this week. The medium to longer-term will rest more with the continued co-operation within Europe to pull the economy out of the mire, and the developments with respect to the US debt ceiling.
In other words, the jury is still out. South Africa looks like the near-term focus.
