Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
So, Where Is Gold's Corrective Upswing? - 7th Mar 21
US Treasury Yields Rally May Trigger Stock Market Crazy Ivan Event - 7th Mar 21
The Great Reset Is Coming for the Currency - 7th Mar 21
Gold Continues Declines on Bond Yield Jitters - 7th Mar 21
The Case for Inflation - 7th Mar 21
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Platinum Market Analysis and Forecast for 2013

Commodities / Platinum Jan 09, 2013 - 01:26 AM GMT

By: The_Gold_Report

Commodities

Violent strikes and supply disruptions in South Africa put platinum in the headlines last year, and the metal spent 2012 selling at a discount to gold. Is a platinum discount the new normal? How will the market shift in the labor strike fallout? And will mining asteroids transform supply fundamentals? CPM Group Platinum Analyst Erica Rannestad met with The Metals Report to share her price and cost forecasts for 2013 and discuss the supply and demand trends to watch this year.

 

The Metals Report: Across the mining sector, investors are concerned with rapidly rising costs. How did the 2012 strikes in South Africa affect operating costs in the platinum group metals (PGM) mining industry specifically?


Erica Rannestad: We expect a 12% decline in PGM output in South Africa. These lower output levels are expected to have the most significant impact on cash costs. Cash costs are a key performance measure used in the mining industry and are typically stated on a per-unit basis. Cash costs mostly refer to direct mining expenses such as labor, fuel and electricity.There are many variations for the calculation of cash costs, so it is important to keep in mind that this measure is not exactly comparable across companies. Because it is stated on a per-unit basis, cash costs can be quite unpredictable, especially if operations are located in high-risk countries. Input costs, particularly labor and electricity costs, significantly increased in 2012, which amplified the already strong increase in cash costs as a function of lower output. In summary, the majority of the increase in cash costs is due to lower overall annual production with the balance coming mostly from labor and electricity cost increases.

 

TMR: What is the average cash cost for South African producers?

 

ER: We monitor cash costs on a C1 basis, which standardizes cash cost statistics. C1 cash costs refer to a standard definition of what figures must be used to calculate cash costs, making the measures comparable across the board. Last year, South African cash costs per ounce of PGMs were about $753 per ounce ($753/oz). Global production outside South Africa was much lower at about $570/oz. But you need to consider that South African PGM production, or output value, is relatively higher in platinum, which is why the cash cost is higher than the global average.

 

PGM C1 Cost

 

TMR: Is your analysis based on the combined output of platinum, palladium and rhodium?

 

ER: Yes. Other metals would be considered by-products.

 

TMR: What is the trend for cash costs in South Africa next year?

 

ER: For 2012, we have a preliminary estimate of a ~25% increase in cash costs to $940/oz. The key point here is much of that increase is due to the significant drop in output. The actual increase in cash costs could range between 15–25%. There are several ways companies can mitigate costs, such as mining higher-grade regions.

 

Cash costs of $925/oz puts some of the high-cost mines in the red in the near term. The near-term cash cost increase doesn't suggest that these mines will close, because in most cases they were profitable during prior years. This year was unusual and very event driven. However, the current cost environment puts these operators at a higher risk.

 

TMR: Your report states that two of the five highest-cost PGM mines were already shut down in 2012. What is the story there?

 

ER: Those are the Everest and the Marikana mines. Both of them are partially owned by Aquarius Platinum Ltd. (AQP:ASX), which had quite an interesting and trying year. Those operations were closed, with Aquarius citing an adverse operating environment and low PGM prices. Management expects to restart operations when conditions improve, which may not be until 2014 at best. Another notable high-cost mine is the Bokoni mine. That operation is undergoing some restructuring between Anglo American Platinum Ltd. (AMS:JSE) and Atlatsa Resources Corp. (ATL:TSXV; ATL:NYSE.MKT; ATL:JSE). Its medium-term success depends on how smoothly that restructuring proceeds.

 

TMR: Are there other mines at risk for near-term closure either due to labor or infrastructure issues?

 

ER: Anglo Platinum's Rustenburg operations may be at risk of temporary closure, or at least some shaft closures. This operation suffered a six-week-long strike that began in September. Costs are expected to increase significantly in 2012. These examples aside, most of the mines in South Africa, while at risk of poor operating performance due to the inherent issues unique to South Africa, are fairly positioned for the current price environment to continue operations in the long term.

 

TMR: What could happen to prices if output reverts to pre-2012 levels?

 

ER: This year the market reacted in two different ways. First, supply shocks increased uncertainty about supply, cut off supply flows and drove prices up sharply and rapidly. Platinum had a 24% trough-to-peak price increase during the Lonmin strike, for instance. Second, prices would drop nearly as fast upon the resolution of an illegal strike as investors started focusing on the dismal demand picture once again. My forecast is for a narrower price range in 2013. There's less uncertainty about supply shocks—we have experienced strikes at all the major operations in South Africa and we have seen how the market reacted. The probability of a repeat of 2012 is low. But there still is a lot of pessimism about demand. As a result, I'm targeting approximately $1,450/oz for platinum as a low and $1,800/oz as a high for 2013.

 

TMR: What are your expectations for the demand side? Can you explain the major market segments and what is driving them?

 

ER: The largest user of PGMs is the auto industry. Auto demand will be driven by an improvement in Europe's economy, possibly in H2/13. Expectations for improvement in the U.S. and Chinese economies this year would also be positive for fabrication demand. Overall, we expect positive, but tepid, demand growth for PGMs from the automotive sector. In auto catalysts there's very little substitutability outside the PGM complex. Alternatives have been tried, but nothing else is as reliable and efficient. The auto makers are going to be buying PGMs despite the price for the foreseeable future.

 

The second-largest source of demand for platinum is jewelry. Platinum jewelry demand is dominated by China. We expect a lower growth rate compared to previous years—positive, but growing slower. Lastly, we expect modest growth from electronic fabrication demand, which mostly applies to palladium. Overall, we are looking for modest growth relative to 2012 levels.

 

Jewelry users of PGMs are much more price sensitive. Platinum is the largest jewelry component in the fabrication demand portfolio. When prices rise, jewelry demand typically comes off. Jewelers try to keep their price points stable for customers and one way to do that is to reduce metal content, which translates to the industry buying in lower volumes.

 

TMR: Investors are increasingly participating in the PGM markets—how is 2013 market sentiment looking?

 

ER: Especially in the case of platinum, investors in 2012 looked to the economy in Europe for clues about PGM market direction. That resulted in a very negative view. Currently, there are expectations for improvement in H2/13 for the European economy that should improve the outlook for PGMs. There may be buying activity in anticipation of that economic growth.

 

Slightly stronger growth in China and the U.S. obviously would also be positive for investor views on PGMs. PGMs are seen as a way to play an overall increase in industrial and economic activity.

 

TMR: PGM exchange traded products (ETPs) have grown globally in the last few years. Are the ETPs a significant force in the market yet?

 

ER: The introduction of the physically backed PGM ETPs has helped to expand marketing efforts for these markets. The PGM markets are much smaller than the gold or silver markets. The ETPs have really contributed to an overall expansion of the PGM investor base. Specifically, they have provided retail-level investors with a lot more access to these markets.

 

TMR: Platinum has been hovering at roughly a $100 discount to the price of gold for the last several months. Is this a transient condition or the new normal?

 

ER: The run-up in gold prices above platinum makes sense because of all the layers of uncertainty in the global financial markets in recent years. The historically large premium that gold has over platinum at present reflects the unusually high level of uncertainty about future economic growth, fiscal deficits, monetary issues and the host of other problems that came to light during and after the financial crisis. We believe a lot of the run-up in gold prices based on these layers of uncertainty are priced into the market now. Once these layers of uncertainty begin to dissolve, we expect to see the platinum price move above gold once again. In the long term, we see platinum's fundamentals as more positive than gold, so we expect to have platinum prices rising, whereas we see a lot of potential for gold prices to decline in the medium term. Potentially as early as 2014, we could see the annual average price of platinum exceed that of gold. On a daily basis, this could happen sooner—perhaps by late 2013.

 

TMR: Besides bullion or ETPs, another option for investor exposure would be mining equities. What companies are you watching?

 

ER: Despite a lot of exploration spending in Canada, the main area of interest remains South Africa. Approximately 85–90% of the pipeline for future PGM mine production is located in South Africa with the remainder completely in North America.

 

In North America we expect several miners to develop PGM projects over the next 10 years. Those include Stillwater Mining Co.'s (SWC:NYSE) Marathon project, Polymet Mining Corp.'s (POM:TSX; PLM:NYSE.MKT) NorthMet project and Panoramic Resources Ltd.'s (PAN:ASX) Thunder Bay North project.

 

TMR: Because prices have been strong for some time, the PGM recycling rate is high. Does PGM recycling compete with mine supply?

 

ER: At this point it's not competing (albeit it is a critical component of supply in today's market), but we expect strong growth in platinum and palladium recycling rates over the next 10 years. Palladium began to be used more in gasoline engines in the late 1990s, with or replacing platinum. Many of those converters are due to be recycled, so growth in palladium recycling is expected to be stronger relative to platinum recycling over the next few years. Secondary supply will account for a much larger portion of total supply in the future. We see it rising from a current 10–15% of supply to 20–30% over the next decade.

 

TMR: What are the major differences between platinum and palladium in terms of price performance?

 

ER: Palladium prices respond much more strongly to investor views on industrial activity. Platinum will trade somewhat as a financial asset like silver and gold. Palladium is much more an industrial play.

 

TMR: At present, are investors or industrial users the main driver of the PGM market?

 

ER: While investors might be a marginal component in terms of absorbing supply, they are critical in rapidly adjusting the market price. Investors have driven PGM prices this year. The 2012 price chart looks like a roller coaster—clearly influenced by supply shocks when investors were bidding up the price. When the supply shocks were resolved, investors would focus on their views about economic conditions. That resulted in reevaluating fabrication demand expectations, which were very negative based on the state of the economy.

 

TMR: Do you expect a similar situation going forward?

 

ER: Yes. I expect investors to attempt to capture any upside in the market that develops due to supply constraints and/or positive demand expectations. That said, we expect volatility to be somewhat reduced from 2012 levels.

 

TMR: Many or most platinum equities have had dismal stock market performance in 2012 —much worse than their underlying commodities. Is there a light at the end of the tunnel for equity investors in the PGM mining sector?

 

ER: The PGM mining sector is still the mining sector. It has been a tough time, but especially bad for the PGM miners because of the huge reliance on South Africa. A bad mining industry environment plus illegal strikes and large increases in cash costs equals poor equity performance. One way mining companies have attempted to address this is changing management. The CEOs in the top-four largest PGM companies all changed in 2012. Lonmin Plc's (LMNIY:OTCBB) Ian Farmer stepped down due to illness and was temporarily replaced by Simon Scott, CFO. Aquarius' former CEO, Stuart Murray, was replaced by Jean Nel, former chief operating officer for the company. Impala Platinum Holdings Ltd.'s (IMP:JSE) David Brown was replaced by Terence Goodlace, the former CEO of Metorex Ltd. (MTX:SJ). Finally, Anglo Platinum CEO Neville Nicolau resigned and was replaced by Chris Griffith, who was CEO of Anglo's Kumba Iron Ore Ltd.

 

TMR: It's a similar phenomenon to what has been taking place among North American senior gold miners.

 

ER: It is a sign that the industry is taking a more aggressive position in seeking solutions to its challenges.

 

TMR: New mining frontiers have made headlines in 2012, both underwater and airborne. Asteroids have come into focus as a potential source for PGMs. What's your view on this topic?

 

ER: Asteroid mining is a novel idea. I get asked about novel technologies in the PGM sector all the time. The central point to remember is that these technologies are not near-term potential contributors to the market. In this case, there would be a tremendous amount of equipment development required and staggering logistical requirements. That's going to take decades.

 

Commercialization of new and novel technologies takes much longer than many people might think. One example, which is also an emerging application of PGMs, is fuel cells. Fuel cells were developed over 100 years ago, but they're only now being applied to commercial-scale markets. Mining asteroids for platinum is interesting. . .but is a long way off.

 

TMR: CPM Group publishes excellent market commentary. How can investors access those?

 

ER: We produce a monthly Precious Metals Advisory and a Base Metals Advisory, both of which contain price projections, relevant market information and supply and demand tables. It is released in the third week of the month. These are annual subscription products. More casual market participants can join our distribution list to receive free market commentaries. CPM Group also publishes three precious metals Yearbooks that are effectively the "year in review" for the gold, silver and PGM markets, released during the first six months of every year.

 

TMR: Thanks for your time—it has been interesting.

 

ER: My pleasure.

 

Erica Rannestad is a commodity analyst at CPM Group. Rannestad covers the precious metals and agricultural softs markets as well as currency markets. She is responsible for building CPM Group's supply and demand statistics for the precious metals Yearbooks and Long-Term Outlook reports. Rannestad is currently most closely monitoring the silver and platinum markets, providing near- and medium-term price forecasts for these metals in CPM Group's Precious Metals Advisory, a monthly publication. Rannestad also often contributes to and supports CPM Group consulting projects and regularly presents CPM Group's market views at conferences and seminars around the world. Rannestad holds a Bachelor of Science degree in finance from Fordham University's Gabelli School of Business.

 

Want to read more exclusive Metals Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators and learn more about metals companies, visit our Metals Report webpage.

 

DISCLOSURE:
1) Alec Gimurtu of The Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Metals Report: None. Interviews are edited for clarity.
3) Erica Rannestad: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

 

Streetwise - The Gold Report is Copyright © 2012 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

 

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

 

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

 

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

 

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

 

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

 

101 Second St., Suite 110
Petaluma, CA 94952

 

Tel.: (707) 981-8999
Fax: (707) 981-8998

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules