THE direction of the platinum price — and to some extent the palladium price — will be determined by developments in South Africa over the next two years, Natixis has said in a Metals Review.
Natixis, a Paris-based investment banker, said tensions between workers and platinum mining companies were likely to remain high next year. “For the next two years, the situation in South Africa will remain the biggest risk to platinum prices,” Natixis said in its second-half review. South Africa is the world’s single largest source of platinum, making up about 80% of supply.
“Adverse government decisions, a protracted power outage and most importantly a serious escalation in labour unrest could lead to a significant shortage and higher platinum prices,” it said.
“The South African government seems to be unable to solve the root of the problem facing the mining companies. We are still years behind the completion of a reliable national power supply, and the government has been unable to resolve the core economic issues facing the population and the country,” it said.
“The whole situation is making foreign investment unattractive in the mining sector,” Natixis said. It sketched two possible price scenarios over the next two years.
If European economies grow rapidly in 2015, resulting in higher sales of vehicles using diesel engines, which use higher loadings of platinum in auto catalysts to scrub exhaust gases, then platinum prices could average $1,620/oz next year and $1,850/oz in 2015. But if European econ-omies continue to struggle, with problems developing in France and Italy, then the outlook for prices would be more subdued, with Natixis forecasting $1,300/oz and $1,250/oz.
“As for palladium, we expect that from the supply side the metal will suffer similar problems: South Africa produces 35% of the metal. Nevertheless, Russia should be able to ramp up supply should South African palladium output drop.”
The amount of platinum in physically backed platinum exchange-traded products has risen by 24 tonnes this year to a record 70 tonnes, overtaking palladium, which has added 10.5 tonnes to 69 tonnes in these products, it said.
Looking at gold, a major foreign currency earner for South Africa, Natixis said a continued recovery in the US economy posed the greatest downside risk for prices.
Compounding the downside risks is the flow of gold out of exchange-traded funds, creating a new supply of gold for the market and putting pressure on prices, which have already fallen 20% this year. “As the economic situation continues to improve, so gold prices are at risk of further declines as interest rates rise and the need for a safe haven dissipates,” Natixis said.
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