London - It’s more than a decade since miners and traders have
met at London’s annual Platinum Week with prices as low as they are right now.
Soft prices, currency moves that have boosted mining costs
and an uncertain demand outlook are weighing on the producers who’ll gather for
cocktails under the medieval stone arches of the City of London’s Guildhall
next week.
“It’s an incredibly tough market out there and likely to be
tough for the rest of the year and maybe next,” Anglo American Platinum Ltd.
Chief Executive Officer Chris Griffith said in an interview. “Market sentiment
is negative towards platinum at present and that begins to feed on itself
irrespective of the long-term fundamentals of supply and demand.”
The commodity, mainly used to cut pollution from diesel
cars, is down more than 20 percent from its highs of nine months ago to about
$925 an ounce. Prices are even lower than during 2016’s event, when the
industry was already heaving from a 10 percent slump from a year earlier.
Griffith is still bullish on long-term prospects for platinum and its sister
metals palladium and rhodium.
Diesel has fallen out of favour with consumers since some
automakers admitted fiddling emissions tests to secure regulatory approval for
their vehicles, in what became known as Dieselgate. The cars’ market share in
Europe sank below half of new registrations for the first time in seven years
during 2016, European Automobile Manufacturers’ Association data shows.
At the same time, a surge in the currencies of South Africa
and Russia, the biggest producing nations, has pushed up the cost of digging up
platinum relative to dollar income from sales of the metal for companies
such as Griffith’s Amplats and Impala Platinum Holdings Ltd.
Hedge funds already smell blood. For the first time since
records began in 2006, they’ve taken a net-short position on the metal. Bets on
falling prices outnumbered wagers on gains by 4,945 futures and options
contracts last week.
Some in the industry even say platinum prices may drift
below those of palladium for the first time in 15 years. Palladium, a metal
that can be used as a substitute for platinum in some industrial applications,
now trades at almost $810 an ounce.
“A crossover could be imminent,” said Anish Lal, a research
analyst at brokerage ADS Securities London Ltd. “The way platinum is dumping,
this could happen by the end of the year.”
Others such as Bernard Dahdah of Natixis SA and Joni Teves
of UBS Group AG, two of the top forecasters in a survey by the London Bullion
Market Association, say it will take longer for palladium to catch up, and in
any event the situation will be short-lived as buyers would switch back to
platinum.
Either way, it’s bad news for South African producers, which
deliver about two ounces of platinum for every ounce of palladium dug,
according to Rene Hochreiter, an analyst at Noah Capital Markets Pty Ltd. in
Johannesburg. The country is the top producer of platinum, bringing up more
than 70 percent of freshly mined metal, research firm Metals Focus says.
Read also: Mining firms lose out on weaker rand as production stops
On the flipside, supply looks set to tighten, say analysts
and miners. Griffith, who is scheduled to speak at a Bloomberg forum
during the London Platinum and Palladium Market association’s annual gathering,
says weak prices are discouraging investment in production.
Vehicle and industrial markets still offer good prospects,
with further potential in jewellery and investment markets, he said.
Still, a slow, steady drop in output may not keep producers
in business, according to those who think a more radical shakeup lies ahead.
The cost of producing an ounce of platinum in South Africa in 2016 was $868,
according to Metals Focus.
“The situation has got so bad, Superman couldn’t handle it,”
Peter Major, director of mining at Cadiz Specialised Asset Management, said
from Johannesburg. “We’re either going to see one big producer go out of
business or a couple of producers are going to lose an arm and a leg.”
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