LONDON, Oct 1 (Reuters) – Less than a year after tearing up a $57 million annual supply contract with its main buyer, Anglo American Platinum is struggling to implement a new strategy of selling directly to end-users against a backdrop of weak prices, sources say.
The world’s top platinum producer, known as Amplats , late last year ended a long-standing deal through which it had sold the bulk of its output at a discount to refiner Johnson Matthey, in exchange for marketing.
The idea was to make more money by cutting out the middleman, going direct to traders and carmakers and seizing profit opportunities by financing or lending metal and arbitraging different locations and grades.
To achieve that, the company, which mines platinum in South Africa and Zimbabwe, expanded marketing and sales teams in London and Singapore.
Amplats’ parent company Anglo American, whose portfolio spans iron ore, thermal coal, nickel and copper, is also undergoing a big overhaul as it tries to improve returns after years of underperformance compared with its peers. It has made a series of high-ranking personnel changes within its wider commercial department, hoping to boost the division’s earnings by $400 million by 2016.
But market sources say Amplats’ plan to lure platinum business away from brokers and banks, which could shake up a market worth $5.4 billion a year, is proving hard to put into practice.
“Anglo’s new chiefs have this bee in their bonnet that banks are scalping margins from them and their business and by setting up their own trading organization they can get a better average price for their metals,” a banking source said.
“The expectation on what they can get from it is too high, especially at a time when the market is really weak.”
Prices of platinum, used in jewellery and autocatalysts, have fallen 7.3 percent so far this year and are at a level that producers say barely covers the cost of mining.
HOBBLED BY STRIKE
On top of that, an unprecedented five-month labour strike in top producer South Africa saw Amplats lose about 40 percent of its mined output and register an almost 90-percent fall in earnings in the first half of this year.
For the rest of this article, click here: http://uk.reuters.com/article/2014/10/01/amplats-strategy-idUKL6N0RJ45G20141001?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews