Curb platinum production or face agony, says Implats
December 15, 2008
By Antony Sguazzin
Johannesburg - Platinum mining houses in South Africa, accounting for almost 80 percent of world supply, needed to curb production to shore up prices as demand weakened or face "agony" during 2010, Impala Platinum (Implats) said on Friday.
Demand for the metal used in vehicle catalysts may worsen after the US senate rejected a $14 billion (R140 billion at Friday's exchange rate) bailout plan for vehicle makers in the US, the world's biggest market for cars and light trucks.
Platinum has plunged 46 percent this year, while palladium, also used in pollution control devices for cars, is down 52 percent. The metals are mined together.
"There's no doubt in my mind that supply-side adjustments are necessary," said Derek Engelbrecht, the marketing director of Implats.
"If there is not a cutback in supply from South Africa, the agony will continue in 2010."
Implats is yet to unveil any cut in output. Bigger rival Anglo Platinum (Angloplat) will report the results of a review of its projects and expansion plans on Wednesday, while Lonmin has said it might close its Limpopo operation in South Africa under a cost cutting plan that might result in more than 6 000 job losses.
Platinum for immediate delivery fell $41 to $801 an ounce at 5pm in London on Friday.
The metal reached a record $2 301.50 in March. Palladium dropped $9, to $172 an ounce.
Vehicle manufacturers account for about a half of global platinum and palladium consumption, according to estimates by Johnson Matthey , a London-based metals refiner, trader and researcher.
The figures take recycling into account. The difficulties faced by US car makers might worsen the outlook for demand, Engelbrecht said.
"We were forecasting a surplus anyway, certainly a few hundred thousand ounces," Engelbrecht said.
"We have two forecasts: one with no supply-side adjustments and one that assumes companies, including ourselves, will act responsibly."
Trevor Raymond, a spokesperson for Angloplat, declined to comment.
Implats fell 2.5 percent, to close at R117 in Johannesburg trading on Friday, for an annual decline of 51 percent. Angloplat fell 9.2 percent to R443.98, extending its drop this year to 56 percent. Global platinum supply is estimated at 6.28 million ounces.
A rebound in platinum prices may not happen, even if the bailout is approved, according to Walter de Wet, an analyst at Standard Bank .
"Somebody still needs to buy their cars, and that's consumers, and nothing has changed," De Wet said. "Even if General Motors gets a bailout, they still need to sell cars and the demand is not there."
South African platinum companies would need to cut annual production by about 500 000 ounces, or 10 percent, next year and by another 400 000 ounces in 2010 if the global economic crisis persisted, said David Davis, analyst at Credit Suisse Standard Securities.
"The industry is at a big crossroads," he said. "The crisis will be prolonged and restructuring is inevitable.
Lonmin, the world's third-biggest platinum producer, was in the worst position of the top three companies, and Implats was in the best position to "withstand" the crisis, he said.
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