Platinum set for biggest deficit in a decade, refiner warns

Johnson Matthey, the world’s largest secondary platinum group metal (PGM) refiner, said that this year the sector is set for its largest supply shortfall in 10 years.

It does not rule out further expenditure cuts and shaft closures in the industry — a bad omen for jobs, particularly in SA.

“Primary supply is predicted to decline by 2%, as Russian shipments return to more normal levels after heavy selling of mined stocks in 2023. In SA, processing the backlog of untreated platinum will help offset the impact of restructuring by major PGM miners,” Johnson Matthey said in its yearly report released on Thursday.

“Its demand, however, should remain firm, with investment in positive territory, and industrial consumption supported by ongoing investment in the glass industry. Automotive platinum use is set to contract slightly due to falling production of diesel cars but will remain close to 15-year highs.”

Johnson Matthey expects the deficit in the platinum market to exceed half-a-million ounces again in 2024. On the primary supply side, where SA is dominant, supply from the country is expected to be flat this year.

The shortfall in the palladium market is expected to shrink significantly to about 360,000oz in 2024. Demand is forecast to fall 6% to 9.7-million ounces, the lowest level since 2016.

Johnson Matthey said platinum markets were expected to remain in deficit until 2028, as hydrogen-linked demand growth offsets declining autocatalyst demand. It said the deficits have not been reflected in price movements.

The PGM sector has been battered by plunging prices. Apart from increased liquidity, investor sentiment weighed heavily on prices in 2023, particularly for palladium and rhodium — metals that are heavily exposed to the car sector, which in recent years has accounted for more than 80% of total demand.

The market consensus is that the rising battery-electric vehicles (BEVs) share will push these markets into persistent surplus in the medium term.

The palladium price has slumped nearly 50% over the past year, while rhodium has lost about two-thirds of its value. In contrast, platinum mainly remains range bound at $900-$1,000, as has been the case for much of the past five years.

SA, the world’s biggest platinum producer, is bearing the brunt of a plunge in PGM prices over the past year. Producers have responded by increasingly focusing on cost-saving measures and cutting capital budgets as margins become tighter.

Impala Platinum last month said nearly 4,000 jobs are on the line across its operations as the sector battles low prices and surging costs. Anglo American Platinum in February outlined plans to cut 3,700 jobs in SA in a bid to reduce costs by R5bn.

Sibanye-Stillwater has already let go of 2,600 workers at its PGM operations in SA. It warned last month that “if low commodity prices persist and with ongoing inflationary cost pressures, there may be further restructuring required. This may include further repositioning to address losses at the US PGM operations.”

Johnson Matthey said: “All the major SA PGM producers have announced restructuring programmes in response to weak PGM prices. These primarily target cost and headcount reductions, with the deferral of replacement and expansion [capital expenditure], rather than near-term closures of existing assets.

“The immediate impact on PGM output will therefore be limited, though cuts to [capital expenditure] will inevitably degrade longer-term production capacity in the SA platinum industry.”

On the primary supply side, the economic and social importance of PGM mining to SA means it is well integrated into the international PGM network. It said PGM production and sales contributed 1.6% to SA’s GDP in 2023, compared with 2.5% for the entire agricultural sector, and accounted for almost 10% of the overall value of SA merchandise exports.

“The risks to platinum supply are probably weighted to the downside, in view of weak PGM prices. Many producers are under financial pressure, and further announcements regarding cuts to capital spending, delays to projects or even outright shaft closures cannot be ruled out,” Johnson Matthey said.

Few expansion projects were under way in SA, including the redevelopment of formerly mothballed mines at Eland (Northam Platinum) and Bokoni (African Rainbow Minerals). “However, these projects are not expected to make a significant contribution to supplies this year and could be subject to delay or a reduction in their scope due to low PGM prices,” the London-based entity said.

“Outweighing any gains from these projects, the closure of the Pilanesberg mine (Sedibelo Platinum) in the second half of 2023 will impact production this year, while we expect another decline at the Kroondal mine (Sibanye-Stillwater), which has limited remaining ore reserves.”

It expects mine output of PGM in concentrate to fall about 3% this year. This is in line with the forecasts by the World Platinum Investment Council.

The council expects lower output from SA and Russia. The council said though SA faces less smelter downtime and load-shedding is seemingly improving, production has been revised lower by 212,000oz to 3,887,000oz since its previous Platinum Quarterly.

“This stems from announced restructuring plans, shaft/section closures and slower than previously expected production ramp-ups,” the council said.

“Platinum’s investment case highlights a market that is facing material near-term deficits as a result of resilient demand, protected from weak economic growth and constrained, or even at-risk, mine and recycling supply.”

Johnson Matthey said PGMs would play a critical role in the energy transition, driven by the decline in internal combustion engine vehicle production, which will boost platinum, palladium and rhodium availability “within a more favourable price environment than seen over recent years”.

Khumalok@businesslive.co.za