Platinum producers have oversupplied the market to such an extent that, even if nothing was mined for an entire year, global demand would still be more than satisfied.
This has been the case for several years now, with the industry producing more than what the market requires. Analysts say the over-production is the result of overly optimistic predictions of demand for platinum, mainly used in the manufacture of autocatalysts, which date as far back as a decade ago.
But the forecasts have proved incorrect, and efficiencies such as recycling technologies have muted the need for new platinum production.
Still, platinum mining companies have continued to pile up the precious metal, meaning that the commodity price has been under pressure. Despite limited or no production from the major mining houses as the strike persisted over the past four months, the oversupply of platinum is so substantial that the metal price – staying around the level of $1 450 an ounce – has failed to respond notably to the developments.
This glut in the platinum market is now a significant factor, which has limited the ability of the platinum companies to negotiate wages. And although employees are standing firm on a demand for a R12 500 minimum wage, employers maintain that they simply cannot afford it.
Research by Michael Kavanagh, a metals and mining analyst at Noah Capital Markets, using data from speciality chemicals company Johnson Matthey, shows that platinum firms have flooded the market for 35 years, year after year, resulting in a cumulative surplus between 1975 and 2013 that exceeds seven million ounces – about a million ounces more than 2013 net demand.
Golden goose industry
According to Kavanagh, some still view platinum as a golden goose industry when it is actually more like a dying duck.
The industry thought demand would grow in response to new emissions regulations. Car component manufacturers would require more platinum, as it was expected more metal would be needed in the manufacture of an autocatalyst in order to adhere to emission standards.
According to Kavanagh, planning and building a platinum mine from the start until reaching full production could take anything from 10 to 20 years, and mining companies would have to forecast what demand might be.
“But auto-makers and catalyst-makers got clever and were able to use the same amount or even less,” said Kavanagh, noting that some substitutes such as palladium are also used in the manufacture of the device.
“Fortunately for them, they [the mines] never delivered [on] their production promises,” he said.
For the rest of this article, click here: http://mg.co.za/article/2014-05-16-golden-goose-or-dying-duck