Like most metals, platinum group metals
(PGMs) have seen a sharp supply-side response to falling prices
and deteriorating automotive demand.
In the past year there have been two distinct
stories in the platinum group metals market. Razor-sharp
fundamentals pushed platinum to a record $2,276 per troy ounce
in March last year, but the global financial crisis and the
collapse of the domestic auto industry resulted in demand
falling precipitously, and by late October platinum prices had
plunged nearly 68 percent to $732 per ounce. The picture was
similar for both palladium and rhodium.
On top of that, the credit crunch and
increased risk-aversion forced investors into a massive
sell-off of platinum group metals. The impact on supply-side
consumption was dramatic.
"In the (second half of 2008) people panicked
and the funds looked to liquidate anything and everything that
had cash value," one New Jersey-based platinum group metals
Platinum group metals are most commonly used
in automotive catalytic converters, followed by catalysts for
various industrial processes. Because of the slowdown in the
auto sector and falling prices for the metals, there has been a
significant supply-side response.
Johnson Matthey Plc, a London-based metals
refiner, said its platinum output declined by about 275,000
ounces to 6.28 million ounces in 2008. South Africa, the
world's largest source of platinum group metals, registered the
biggest hit, with output down 250,000 ounces to 4.78 million
ounces. North American and Zimbabwean platinum supplies
increased slightly, the company said.
"Should the present economic crisis continue,
platinum could trade as low as $700 per ounce during (the first
half of 2009) if investors shun commodities," Johnson Matthey
said in a report. "Conversely, if appetite for risk returns,
the price will more closely reflect fundamentals and platinum
could trade as high as $1,400 within this period."
Global palladium supplies fell by 2.5 percent
to 7.51 million ounces, mainly due to lower sales from Russia.
Palladium followed the trend of other precious metals, peaking
at $588 per ounce in March before heavy fund sales drove it to
a low of $199 later in the year.
Ian Farmer, chief operating officer of
London-based Lonmin Plc, said that platinum group metal prices
remain below the cash cost of production for many in the
industry, which is forcing action by producers. "We anticipate
a decline in investment in the industry in the short term," he
said. "This could include shaft closures, resulting in
reduction or deferment in the supply of PGMs, but this will
increase the possibility of a rebound in pricing once sentiment
and markets improve."
The company announced late last year that it
would put a number of its mines on care and maintenance as it
looked for ways to improve its operational performance, given
the high cost of platinum production, and would lay off as many
at 5,500 workers at the Limpopo and Marikana operations in
South African miner Aquarius Platinum said in
December that it would shut its Everest Mine in South Africa
due to geological-related technical problems and the low
platinum price. The company laid off 1,950 people, the majority
of the Everest work force.
Anglo Platinum Ltd., Johannesburg, South
Africa, the world's largest producer, cut its expenditure plans
by as much as 30 percent.
In North America, Stillwater Mining Co.,
Billings, Mont., announced in November that it would lay off
370 workers, or nearly 21 percent of its 1,770 employees. The
company expects to produce 345,000 to 370,000 ounces of
platinum group metals at the Stillwater Mine this year and
105,000 to 120,000 ounces at the East Boulder Mine.
MMC Norilsk Nickel, Moscow, is the majority
shareholder in Stillwater Mining. The Russian miner said its
platinum output fell to 625,000 ounces last year from a planned
720,000 ounces, and expects output of about 600,000 ounces in
In October, North American Palladium Ltd.,
which produces about 4 percent of the global supply of
palladium, placed its Lac des Iles Mine in Thunder Bay,
Ontario, on care and maintenance due to the effect of adverse
market conditions on global commodity prices. "The temporary
closure of the mine will allow us to conserve cash and focus on
strategic initiatives that we believe will help enhance
shareholder value over the long term while we wait for metal
prices to recover," William Biggar, the company's president and
chief executive officer, said.
But even with the supply cuts, most analysts
are still forecasting a global surplus this year. JPMorgan
Chase & Co. has forecast a 2009 platinum surplus of 750,000
ounces, while RBC Capital Markets Corp. anticipates a
"The supply-side response is not fully
developed yet because we have only been in this environment for
a few months now," a second platinum group metals trader said.
"People were surprised by the depth of the economic slowdown,
especially toward the end of last year. But it's not a quick
process to close a shaft or an open pit. The response is always
slower than change in the demand side."
South African investment bank Investec Ltd.
expects platinum prices to average $970 per ounce this year and
$1,350 in 2010, while palladium is forecast to average $220 per
ounce this year and $250 in 2010.
"We see downside risk to the platinum price
in the near-term, particularly if vehicle sales continue to
decline in the first few months of 2009," Investec analyst
Rebecca O'Dwyer said in a research note. Tom