Platinum settles into global glut rut
In spite of an enduring strike on the platinum mines, the metal price has remained stable. At first it puzzled market watchers who thought that the platinum price could react any day to the loss of production and head skyward.
But it has continued to bob around the $1 440 per ounce mark – just as it has been doing since the strike began on January 23.
It has become accepted now that the unwavering platinum price reflects a glut in supply. Research by Michael Kavanagh, a metals and mining analyst at Noah Capital Markets, using data from Johnson Matthey, shows the cumulative oversupply is in fact more than what the world can consume in an entire year. Kavanagh's graphing shows that platinum miners have flooded the market for 35 years and year after year have produced more metal than the world demand. The result is a cumulative surplus between 1975 and 2013 that exceeds seven million ounces.
According to Johnson Matthey's Platinum 2013 interim review, gross platinum demand for 2013 was 8.42-million ounces, but after recycling was factored in, net demand was at 6.34-million ounces. The company is a global speciality chemicals company.
In 2011 and 2012, net demand was around six million ounces and the report showed South Africa produced 4.12-million ounces of the world's supply last year.
The primary reason for the years of overproduction was the industry’s overly optimistic demand forecasts, said Cadiz Corporate Solutions mining analyst Peter Major. "Rightly or wrongly, platinum miners expected tightening emissions standards to lead to increased metal loadings in auto catalysts. This has not happened as the auto-catalyst makers have been effective at meeting tightening legislation with constant loadings. The South African platinum industry never expected palladium to displace platinum."
Although Johnson Matthey'’s report shows that investment only accounted for 765 000 ounces of demand, Exchange Traded Funds (ETFs) are an important factor that was not present before, Major said.
ETFs, an investment product, began with gold and, given their success, have very recently moved into platinum and palladium offerings too. ETFs must be backed by the physical metal and so only as many ETFs can be sold as there are real platinum ounces.
Currently there are about 2.5- million platinum ounces in ETFs globally, said head of exchange traded products at Absa Capital, Vladimir Nedeljkovic.
Absa Capital's NewPLat ETF is the biggest ETF fund globally with over R15-billion in assets and more than a million ounces of platinum.
Absa's palladium ETF offering launched on March 27. On April 23 it held 205 000 ounces of palladium, equivalent to R1.7-billion. The palladium price has increased since the strike started.
The platinum price took a dip on Tuesday as Amcu discussed a revised wage offer with mine bosses, causing investors to speculate that an end to the strike could be in sight. However, by mid-morning on Wednesday it had bounced back to $1 406.5.