Dip in South African output will bring down platinum surplus
Falling platinum production from SA, the world’s largest source of the metal, will contribute to bringing the global market for the industrial and precious metal close to equilibrium in 2018 after the market suddenly popped into a 250,000oz surplus in 2017.
According to data released by the World Platinum Investment Council, a group funded by SA’s platinum miners to spur investment in the metal used to make autocatalysts and jewellery, the market will move into a far smaller surplus of just 25,000oz in 2018, with mined supply falling by 4% led by SA, Russia and smaller suppliers.
To offset this decline, the demand for platinum from makers of autocatalytic converters — devices made using the metal to scrub out noxious gases from diesel engine exhausts — is also forecast to fall by 3% to 3.285-million ounces.
For South African platinum miners the worry is that the level of recycled platinum continues to rise, coming close to half of SA’s output. The report envisaged a 60,000oz increase in recycled platinum, bringing levels of metal returned from old autocatalysts and jewellery to 1.965-million ounces, close to half of SA’s expected 2018 output of 4.175-million ounces.
SA’s platinum output is under severe strain because of high operating costs and old, labour-intensive mines that have been undercapitalised for at least five years because of moribund metal prices despite deficits over that period.
Impala Platinum, the world’s second-largest platinum miner, last week spoke of shutting four old mines in the next two years and lowering its output from its operations around Rustenburg to 700,000oz a year from 2022 instead of the 830,000oz it had spoken about in recent years.
Another major factor troubling the platinum industry is the anti-diesel sentiment in western Europe, which accounts for 1.56-million ounces of the global demand of 3.39-million ounces of the metal used in diesel autocatalysts.
Demand for platinum from the vehicle sector was forecast to fall by 110,000oz in 2018.
"Diesel car shares seem unlikely to recover in western Europe, though the industry is very clear that diesel engines will continue to offer lower carbon dioxide emissions, particularly for larger and higher-mileage vehicles, and hence must remain a significant part of the western European light vehicle market," the report said.
There is a glimmer of hope for the platinum industry if autocatalyst makers in the petrol engine sector start switching away from palladium and return to platinum in the devices given the long-running deficit in palladium and its increase in price above that of platinum.
"We are hearing … that US auto makers are definitely doing test work to make sure they could do the substitution and we’ve heard further anecdotal evidence that one auto maker certainly has already substituted their palladium with platinum," said the council’s director of research, Trevor Raymond.
The US accounts for more than 400,000oz of platinum a year. China uses about 200,000oz a year.
Raymond said the autocatalyst market consumed about 8-million ounces of palladium a year against more than 3-million ounces of platinum. Substitution in the US and China, where makers of petrol-driven vehicles are concerned about palladium supplies, could result in a relatively important new source of demand for platinum.