Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A hand holds an 80% pure platinum nugget weighing 546 grams which was taken from the Ural Mountains in Russia. The Hereaus family has owned the valuable nugget since 1851. Source: Platinum Guild
Platinum futures in New York advanced to the highest level in six weeks on Monday, buoyed by a stronger gold price and a new report indicating the PGM market remains in deficit.
In afternoon trade on the Nymex in New York platinum for delivery in July jumped $9.20 or 0.8% to $1,178 an ounce. The metal has recovered from a 2015 low of $1,094 an ounce struck mid-March but remains down slightly year to date.
Sister metal palladium pulled back on Monday with Nymex June contracts exchanging hands for $792.50. The price of palladium is flat for the year so far, but has lost sight of 13-year highs above $900 an ounce set in August last year.
A new report by The World Platinum Investment Council predicts a market deficit of 160 koz in 2015, that’s down from the industry body’s 235 koz prediction made at the end of last year.
WPIC said its total supply forecast remains unchanged at 7,965 koz as higher projected mining supply is offset by a reduction in secondary supply from higher levels of autocatalyst recycling. Primary production of PGMs are highly concentrated with South Africa responsible for 70% of total platinum output while Russia accounts for the bulk of global supply of palladium.
The change to the deficit forecast is because of a reduction in expected industrial demand in China based on slowing economic growth within the world’s second largest economy according to WPIC.
There is consensus among analysts of a deficit this year and WPIC’s estimate is at the lower end of forecasts for the year. A report released last week by GFMS predicts a 670 koz shortfall, while Standard Bank and UBS forecast deficits of over nearly 1.2m oz and 1.3m oz respectively.
At more than 1 million ounces the deficit in platinum in 2014 was the largest ever recorded with data going back to 1975 following a five-month strike at the three largest mines in South Africa.
WPIC says key drivers behind the continued deficit during the first quarter include:
· Increased jewellery demand as fabricators in China restocked following the Chinese New Year period and a decline in jewellery recycling levels in a weaker price environment.
· Total mining supply remained largely flat compared to the final quarter of 2014 as increased output in South Africa and Zimbabwe was offset by declines in other regions.
· Lower recycle supply as the fall in jewellery recycling exceeded the slight increase in autocatalyst recycling.
· Over the remaining quarters of 2015 supply is forecast to closely match demand.
Total global supply of platinum was 1,835 koz during the first quarter of 2015, with total mining supply estimated at 1,385 koz:
· South African refined production continued to recover from the 2014 strike rising to 995 koz, up 2% from the final quarter of 2014.
· While supply from Zimbabwe increased 16% to 110 koz, supply from non-Southern African regions collectively declined 10% to 310 koz, both compared to the final quarter of 2014.
· Supply from recycling decreased 6% quarter-on-quarter to 450 koz and included a 3% increase in supply from spent autocatalysts from a weak final quarter of 2014. Supply was also impacted by a 23% fall in jewellery recycling following lower retail sales in China.
Total global demand of platinum was 1,995 koz during the first quarter of 2015, up 75 koz compared to the final quarter of 2014:
· The first quarter of 2015 saw autocatalyst demand increase by 5% quarter-on-quarter to 825 koz, buoyed by increased European car sales and the roll-out of Euro 6-compliant catalysts.
· Platinum jewellery demand for the first quarter is estimated at 750 koz, as jewellery manufacturers increased inventory levels after the Chinese New Year.
· India continues to be a standout growth market for platinum jewellery with retail sales continuing to climb in the first quarter of 2015.
· ETF sales exceeded purchases in all the major investment regions in the first quarter of 2015 and reduced ETF holdings by 50 koz compared to the 30 koz reduction in the final quarter of 2014.
· Bar and coin purchases amounted to 35 koz in the first quarter of 2015, a similar level to the previous quarter.
