Platinum market could face shortage: PwC
The platinum price continued to run on Thursday, closing at $1,056.15 an ounce, a week after after top platinum producer Anglo American Platinum announced it is shutting down a smelter responsible for one fifth of its refined platinum capacity.
Year to date the platinum price is up more than 22% thanks to predictions of another annual market deficit and the threat of labour action in South Africa which is responsible for 73% of global annual supply.
"Platinum miners' struggles are not dissimilar to those flowing throughout the South African mining industry – cost pressures, declines in commodity prices, and low or negative profit margins"
Now a major auditing firm is warning that subdued supply due to chronic under-investment in the platinum industry could result in shortages of the metal used mainly in jewellery and autocatalysts.
According to a report by PwC, lack of investment in platinum mines over the last two years plus strikes between 2012 and 2014 will exacerbate the supply deficit. It notes that investment started decreasing in 2008, compared to 2013 for the rest of the mining industry.
"Platinum miners' struggles are not dissimilar to those flowing throughout the South African mining industry – cost pressures, declines in commodity prices, and low or negative profit margins," the report states.
"Low margins have meant that platinum companies have often not been able to fund existing development commitments from cash generated from operations."
"Cash that could otherwise have been used for new developments was used for survival during the prolonged industrial actions in 2012 to 2014, resulting in weaker balance sheets."
In its latest quarterly report the World Platinum Investment Council adjusted the supply deficit forecast for 2016 upwards by 16% or 65,000 ounces to 520,000 ounces, from 455,000 ounces previously, mostly on the back of lower than expected recycling growth. 2016 is set to the fifth annual year of market shortages for platinum.
Total demand for 2016 was expected to increase moderately year on year to 8.25m ounces. Total investment demand is forecast at 350,000 ounces, up 45,000 as bar and coin demand remains strong and after ETF net sales tapered in the first half of the year. Automotive demand is expected to be largely static as is jewellery demand – up 5,000 ounces on 2015 – buoyed by growth in India, the US and Western Europe offsetting declines in China and Japan, according to the WPIC.
Total mining supply was forecast to fall 3% to just under 6m ounces. Annual supply from South Africa has fallen from a peak of nearly 6 million ounces a decade ago to an expected 4.2 million ounces this year.