Platinum industry frets over Sibanye
The producer’s in-the-pipeline takeover of Lonmin has marketing implications for the slowing down Chinese market
As the Platinum Guild International tries to stem the decline in Chinese demand for platinum jewellery, the industry body is fretting about what Sibanye-Stillwater’s takeover of Lonmin to create a new power in the sector will mean for its marketing effort in the world’s most important platinum jewellery segment.
In the face of stiff competition from white gold, which is an alloy of gold, nickel, silver and palladium — which is far cheaper than platinum, and the decade of subdued platinum prices — Chinese demand for platinum jewellery has waned, a source of profound worry for producers of the metal.
China accounts for half the world’s demand for platinum for jewellery, which accounts for a third of the global consumption of 7.8-million oz of platinum.
Not investing in marketing in China or sharply reducing it to accommodate any decline in income from the guild’s members could see demand more than halve.
At the Longjia Jewellery Exhibition Site in Shenzhen where platinum and gold jewellery is sold wholesale to retailers, the challenge posed by the latter is clearly evident.
While the array of platinum jewellery beneath the long rectangular counter is vast and dazzling, there is just the one counter. The counters housing an enormous variety of 24 karat and 18 karat white, rose and gold jewellery stretch away into the distance, covering a myriad of designs, including popular Hello Kitty pieces.
Limited designs and the difficulty of working with platinum have limited purchasing choices for consumers and give jewellery makers — numbering about 20 in China — and some 59 retailers with a network of 7,300 stores thin margins compared to gold.
Major mining companies in SA, the source of up to 80% of the world’s platinum, fund market development organisations like Platinum Guild International to market and encourage buying of the metal as jewellery, an investment or an industrial product.
Anglo American Platinum (Amplats), the world’s biggest source of the metal, funds $30m of the guild’s budget of $50m, but the difficulties experienced by producers in SA, where more than half of mines are unprofitable, have put a financial squeeze on the guild, which has dialled back its spending in China.
While the existing two largest producers, Amplats and Impala Platinum, are meeting their funding commitments, others have fallen behind, including Sibanye, Lonmin, Royal Bafokeng Platinum and Northam.
Amplats, through the guild, is alone in boosting advertising of platinum in India.
The guild’s CEO Huw Daniels said that for every 100,000oz increase in jewellery demand, the price will increase by $66/oz, while the guild reckons it can add $500/oz to the platinum price by advancing a three-pronged strategy.
One is extending the bridal jewellery market in 267 tier three cities, which are home to 210-million people, generating 350,000oz a year of demand after a four-year marketing campaign, and another 270,000oz a year of demand by tapping into jewellery sales for occasions outside weddings and engagements, he said. The third is to tap into Valentine’s Day, which in China means jewellery for women and men.
Not investing in marketing in China or sharply reducing it to accommodate any decline in income from the guild’s members could see demand more than halve as 18 karat gold eroded platinum’s share of the jewellery market, industry sources said.
Platinum jewellery demand has fallen to below 1.4-million oz a year from a peak of 2.1-million oz in 2013.
The guild fears a continued a decline in Chinese consumption of platinum jewellery and it is deeply worried about the rise of Sibanye-Stillwater into second place as a source of the metal when it finalises its takeover of world number three producer Lonmin in early 2019.
“What we’ve observed so far in 2018 is that the Chinese market does not appear to be bottoming out yet, continuing a decline in the jewellery market we’ve seen since 2013,” Daniels said.
“The Chinese market will continue contracting without a step change in marketing. It has a much higher potential than two million oz,” he said.
Amplats CEO Chris Griffith said SA’s platinum industry was facing difficult times and companies were paying what they could in line with their commitments to the guild.
“We just want everyone to pay their fair share,” he said.
Sibanye had yet to finalise the Lonmin transaction, needing votes of approvals from shareholders in both companies as well as court approval in the UK to delist Lonmin from the London bourse, and it would consider what the assets could afford to invest in marketing, said Richard Stewart, Sibanye’s executive vice-president of business development.
“There are several other investment priorities at Lonmin that are required that would need to be weighed up against market development investment,” Stewart said, adding Sibanye would have to consider company-specific marketing initiatives as well as investing in industry-funded marketing bodies like the guild.
“Critically, however, a very important consideration of any such funding is affordability of our operations to sustain such support. This means that we need to fully understand and be able to justify the various bodies’ business models, strategies and funding options so that we can be comfortable we are getting an appropriate return on our investment,” he said.
The scale of potential in China is phenomenal. From selling a single diamond in 2002, ZBird, a company that has an online shop with 1-million customers and a plush, high-end jewellery store in Shanghai, the company plans to roll out 300 stores across the country within three years, said Xu Xiao who founded ZBird with her brother.
The business model achieves a 60% purchase rate at its store because customers browse and select high-quality platinum engagement and wedding jewellery online before coming into the shop to finalise the purchase, double that of other jewellery stores, she said.
The model will be rolled out in the three top tiers of cities in China, opening a market of nearly half a billion people, she said.
• Seccombe was Amplats’s guest in China