Troubled Outlook For Platinum
BMI View: The outlook for global platinum supply looks increasingly troubled as strikes continue in South Africa's platinum sector. Adding to this, the South African government recently announced a limitation on the amount of water to be made available for platinum mines. Despite these developments, platinum prices have continued to head south, most likely because South African supply disruption had already been priced in and we have seen an uptick in supply from Russia and Zimbabwe. We maintain our core view that supply side issues and strong autos demand will lend support to platinum prices in the long term .Despite short-term weakness in platinum prices, we maintain our core view that supply side issues and solid autos production in the USand China will provide support for platinum prices over the long term. The South African labour union, AMCU , has been on strike at the Rustenburg and Pilanesburg mines owned by world's largest platinum producer, Anglo American Platinum (Amplats) since lateSeptember. Workers are protesting plans by the company to cut over 3,000 jobs by the end of the year. The strike action has resulted in an average of 3,100 oz of production lost per day. Adding to supply side issues, in October the South African government announced that the quantity of water available to platinum mines to alleviate drought conditions would be limited in an effort to reduce environmental degradation. Given that South Africa accounts for over 70% of global platinum production, we expect these developments in the sector to have a negative impact on platinum supply and thus provide support for prices.
|Select Countries - Platinum Production (moz)|
Concurrent to supply side issues, strong autos production growth will constitute an additional factor lending support to prices over the long term. Platinum is used extensively in the autos sector in catalytic converters. BMI's autos team anticipates solid growth in autos production from China and the U S over our forecast period to 2017.
|Autos Growth To Lend Long-Term Support|
|Selected Countries - Vehicle Production (% change y-o-y)|
The recent weakness in spot platinum prices has defied the work stoppage at Amplats, a shutdown of federal government operations in the US and a decline in value of the US dollar. Likely factors contributing to current price weakness are firstly an increase of platinum supply from Zimbabwe. Strong operating performance from Amplats and Zimplats this year to date in Zimbabwe increased the country's production of the precious metal, to roughly 125koz in Q113. Although Zimbabwe's output accounts for only a small proportion of global supply, an increase goes some way to compensate for temporary production losses at Rustenburg and Pilanesburg . Norilsk Nickel has also posted a surge in Russian production. In Q213 Norilsk's platinum production was up 35% on Q113 at 188koz, as a result of greater output at the Polar Division. The company's total platinum output for H113 was 328koz, an increase on H112 attributed to improved operating performance at its Russian mines.
It is also likely that much of the strike action currently affecting Amplats' operations in South Africa had already been priced in, given that the company announced its intentions to lay off worker s at the beginning of the year. Furthermore, the AMCU had been vocal about its intentions to initiate strike action a number of months before the actual strikes began, thus likely contributing to the price rally seen between July and September of this year. Overall , we highlight upside risk to platinum prices as they head towards support at around US$ 1,320/ oz.
|Supply Disruption Priced In|
|Spot Platinum (US$/troy oz)|