Quadrupled recycled platinum supply driving mining price down

A significant increase in the supply of platinum from recycling, a strong fall in demand for autocatalysts and price-elastic Chinese jewellery demand are combining to hobble the platinum mining industry.

 (Amplats) CEO Chris Griffith tells Mining Weekly Online in the accompanying video interview that secondary supply of platinum from recycling quadrupled from 500 000 oz a year to 2-million ounces a year from 2000 to 2012, with demand for autocatalysts falling by nearly 9% in the latter year.

While much store was placed on extra demand for jewellery in China, this demand proved to be price elastic, with demand rising when the price was down and demand falling when it was up, which kept the price in a narrow range.

With the price unlikely to rise and with the massive increase in costs, the industry is facing an increasingly tight future.

“Current market conditions are very difficult for platinum miners,” says Griffith.

This is in sharp contrast to the market conditions of the past.

From the 1980s to the 2000s, the rate of growth of demand for platinum in jewellery, industry and autocatalysis averaged 5% a year.

In 2006, Amplats anticipated wrongly that these halcyon conditions would persist to 2012.

But instead of demand continuing to grow at a rate of 5% a year from 2007 to 2012, there was a slight overall demand reduction, plummeting autocatalyst demand and ups-and-downs from jewellery demand, which traditionally serves as a market saviour when prices are low.

Miners were increasing supply in the expectation of continued high growth and at the same time the 2-million ounces of recycled supply began to virtually match what Amplats puts on to the market a year from its mining activities.

As a result of these fundamentals, there is an oversupply of platinum in the market – a scenario that is likely to persist.

“We’re unlikely to see a substantial improvement in demand in the short term and we are likely to see additional ounces come on to the market from secondary supply.

“Some of the demand will come from highly price-elastic areas, which means that the price is unlikely to rise.

“With the price unlikely to rise and with the massive increase in costs, it means that the industry is facing increasingly difficult times going ahead, not better times, hence the need for us, under circumstances of having loss-making shafts, to make a change to the business.”

The change has been the most far-reaching in the JSE-listed company’s 58-year history and involves the closure of two mines, the mothballing of four shafts, the selling of Union mine and the offer to create at least one new non-mining job for each of the 14 000 mining jobs that are expected to be shed.

“Clearly, our first objective has to be to restore profitability. In that process, we’ve evaluated this business inside and outside, backwards and forwards, for almost a year now, “ Griffith tells Mining Weekly Online.

The production profile will be cut by 400 000 oz to align the output with demand and Rustenburg will be restructured into three operating entities, removing 250 000 oz to 300 000 oz a year of high-cost production.

Four Rustenburg shafts, Khuseleka 1 and 2 shafts and Khomanani 1 and 2 shafts, will be mothballed for the long-term and the Rustenburg operations will become a 320 000 oz to 350 000 oz a year producer, ensuring more effective capital allocation.

As a result, Amplats will reduce its planned capital expansion over the next ten years by 25% to R100-billion in order to focus investment on low-cost, high-margin projects. – Creamer Media