Laptop sales have overtaken desktop sales in the United Kingdom, according to retailer PC World. This may not have happened in South Africa yet, but booming laptop sales are great for this country, which produces 77% of the world’s platinum.
Platinum and some of its five sister metals are key ingredients in laptops. Platinum and rhodium are needed to manufacture liquid crystal display (LCD) screens. All hard drives now contain platinum in their magnetic layers. Furthermore, hard drives increasingly contain ruthenium because it overcomes previous limits on disk storage capacity. The resistors on a laptop’s motherboard are likely to contain ruthenium and its capacitors palladium.
The only member of the platinum family that has not prospered in the digital age is osmium, used to make phonograph needle and fountain pen tips. The osmium market is now so slow, it is the only platinum group metal whose price www.platinum.matthey.com/prices/price_charts.html does not bother to track.
Though platinum is down from May’s peak of $1 325 an ounce, it is still about 50% higher than a year ago. Rhodium and ruthenium have tripled over the past year to $4 765 and $180 an ounce respectively, while iridium has more than doubled to $400 an ounce. Palladium was more than twice last July’s $180 in May, but is now about $330 an ounce.
Fortunately for laptop buyers, the minute amounts of platinum and its sister metals in an individual computer have little effect on its overall price. But booming laptop sales consumed enough platinum to offset weaker jewellery sales and mixed demand from vehicle manufacturers. Car-makers have traditionally bought half of platinum mines’ output to make autocatalysts and spark plugs.
North American vehicle-makers sourced more than 60% of the platinum they needed for autocatalysts from scrap yards last year, according to Johnson Matthey’s 2006 platinum report. The high platinum price also accelerated the car industry’s switch from platinum-based catalysts to palladium after-treatment systems. Nevertheless, autocatalysts remained the platinum industry’s biggest customer, consuming 3,8-million ounces in 2005.
Jewellery was in second place with 1,96-million ounces, and industrial uses such as hard drives and LCDs were in third place with 1,68-million ounces. If last year’s buying trends continue — with jewellery demand slowing further because of higher prices while consumer electronics consumption rockets — industrial use looks set to overtake jewellery this year.
In 2005, worldwide platinum jewellery sales fell 9%, slipping below two million ounces for the first time since the mid-1990s. Worst was China, where platinum jewellery sales dropped 13%, making it three years in a row that purchases by Chinese jewellers dropped substantially. Johnson Matthey said high platinum prices were mainly to blame, but Chinese astrology was also a factor: 2005 was considered an inauspicious year to get married, putting wedding ring sales in the doldrums.
The nascent South African platinum jewellery manufacturing sector consumed increasing volumes of metal but remained small.
The report said soaring demand for personal computers and consumer products containing hard disks was the driving force behind a 20% increase in platinum demand from the electrical industry in 2005. Total worldwide consumption in electrical products reached 360 000 ounces, up from 300 000 ounces in 2004. The hard disk industry enjoyed another year of rapid expansion in 2005, with worldwide disk output estimated to have risen by more than 30% and platinum consumption increasing at a similar rate.
The proportion of platinum in the magnetic alloy of hard drives has been increasing steadily over time, from less than 10% five years ago to more than 35%.
“Both private consumers and businesses appear to be replacing personal computers more rapidly than in the past, owing to lower prices and a shift in consumer preferences towards less durable notebook computers,” the report said. “This helped to drive PC sales upward by about 16% last year. In addition, there has been strong growth in the use of hard drives in a range of consumer electronic devices, particularly personal video recorders and MP3 music players. In recent years, the average number of disks required in each hard drive has fallen, as increases in data storage capacity have been offset by improvements in the quantity of data that can be stored on a given area of disk (the areal density). However, improvements in areal density have now slowed, while data storage requirements are still growing rapidly. As a result, the disk per drive ratio has begun to increase again, further boosting overall demand for hard disks.”
Car-makers are likely to remain platinum mines’ biggest customers. The zero-emission hydrogen fuel cell buses being tested in London use platinum catalysts. Ford, General Motors and DaimlerChrysler recently told the US Congress they will produce two million vehicles based on this technology by 2010.
Invest here
Though the rosy prospects of platinum and its sister metals are generally reflected in the share prices of the eight companies listed in the JSE’s Platinum & Precious Metals sector, some of the shares still look like good value.
Lonmin is trading at a price-earnings (PE) ratio of 272, meaning it is going to have to perform spectacularly to meet its shareholders’ extremely high expectations. Lonmin, currently the third largest platinum producer, is expanding aggressively. It expects to break the one million-ounce barrier this year.
Shrewd investors tend to wait for a dark cloud to pass over a company to temporarily depress its share price. That happened to Impala Platinum (Implats) on Tuesday when its CE Keith Rumble resigned. Implats shares promptly plunged 5% to R1 370. The second largest platinum miner is trading at a PE of about 24. A reason investors have not pushed Implats to Lonmin’s dizzy heights is it owns platinum mines in Zimbabwe, which President Robert Mugabe is threatening to partly nationalise.
Northam is even more reasonably priced with a PE of 18. Northam has had to recover from a fire in 2004. The Merensky Reef that Northam mines is geologically complex. The company has reported that mining conditions are particularly difficult at the moment, resulting in poor extraction ratios, loss of mining face and lower grades.
Anglo Platinum (Angloplat), the world’s largest platinum producer, is trading at a PE of 41. Rustenburg last year reported a lack of available Merensky reserves and Amandelbult struggled with difficult ground conditions. Angloplat managed to offset lower production from these mines by forming joint ventures with other platinum miners.
The platinum sector includes two recent listings for speculators: Eland and Wesizwe. Eland is developing a new mine on the Western Limb of the Bushveld Igneous Complex. Wesizwe is an exploration company with prospects around Rustenburg and is 33% owned by the Bakubung community. — Robert Laing