Global Platinum Market Could See Deficit of 400,000 Ounces Following South African Mine Turmoil

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--South Africa's platinum production has fallen to an 11-year low. According to the "Platinum 2012 Interim Review," the global market is being pushed into a deficit as safety stoppages, strikes and mine closures cut production from the world's largest supplier of metal, according to Johnson Matthey plc (PINK:JMPLY) (London, England).

Anglo American Platinum Limited (Johannesburg, South Africa), the world's largest platinum producer, lost at least 170,000 ounces (oz) of platinum during an eight-week strike. In an attempt to get operations running again, Anglo American Platinum has made a new offer to workers; however, bargaining continues.

The global market for the metal was forecast to slip into a deficit of 400,000 oz, with disruptions in South Africa removing 600,000 oz from supply in 2012.

Platinum from South Africa would fall 12% from 4.85 million oz to 4.25 million oz. In 2011, the global market had a surplus of 430,000 oz.

The global supply of platinum (including output from mines in Russia, North America and Zimbabwe) is at the lowest levels since 2000. It is currently 10% below output last year at 5.8 million oz. As stoppages have run into the fourth quarter, the supply total for 2012 could well be lower than the report is forecasting for South Africa, said Jonathan Butler, author of the Johnson Matthey's 2012 interim review.

"Even before the unprecedented disruption we've seen in the second half, producers were already considering restructuring their low margin operations in the light of weak prices and high costs," Butler said.

There is liquidity in the platinum market as it digests surpluses from previous years. The relatively muted price reaction to strife in the country, low lease rates as well as the price that banks or fabricators lend platinum, indicated that there was enough metal to satisfy immediate needs.

Johnson Matthey's principal analyst said that while gross demand in auto catalysts was predicted to soften by 1% to 3.07 million oz, greater demand was expected from the light-duty diesel sector in India. In the jewelry sector, demand was forecast to reach a three-year high of 2.73 million oz, driven mainly by China and India.

However, industrial demand was forecast to subside by 13% to 1.79 million oz in 2012. Demand in the glass manufacturing and electrical sectors was expected to soften, but purchases for non-road emissions control applications were expected to rise.

Investment demand for platinum would remain positive at 490,000 oz, with investment in physically backed exchange traded funds largely following the price during 2012, with net investment during periods of higher prices. Investors started pouring their money into the market as prices increased in the third quarter, said Alison Cowley, principal analyst.

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