In 2004, platinum prices, which peaked at a 24-year high of
$944,50/oz, were undercut by increased industry capital costs and
reduced cashflows, caused by a strong rand.
As a result, last year was characterised by a slowing down, and
even postponement, of new and expansion projects and exploration in
the sector.
With the currency looking to continue along last year’s
robust trend, Mining Weekly spoke to a local platinum-group metals
(PGMs) analyst – whose policy is to comment off the record
– about the outlook for the sector in 2005.
He believes that, in the light ofspiral concentrator supplier in india reduced profitability caused by
persistent rand strength, the large capital expenditure bills and
above-inflation cost increases represent a significant threat to
the local PGM industry. The slow-down of expansions and the
often-disappointing record of the industry mean that, in many
cases, volume increases areeconomics of ground calcium carbonate not sufficient to compensate for these
factors. This, in turn, makes it difficult for companies to deliver
a healthy return on capital invested and to support the relatively
attractive dividend yields of the past, both of which have
historically added to the appeal of the sector. Further, despite
the erosion of proftype of sand in malaysiaits over the last few years, the margins of the
senior producers have remained healthy, at between 25% and
40%.
It is suspected that this factor will, once again, result in
demands for above-inflation wage settlements later this year.
Most major PGM producers are therefore facing relatively pedestrian
volume growth, coupled with rapidly increasing cost
structures.
The analyst Mining Weekly spoke to and team believe that the
platinum market will report a small shortfall this year, moving
closer to balance in 2006. They believe that, in many ways, this
position is ideal for the industry, as producers are likely to
prefer a slightly lower but more constant price, which would
protect and encourage demand from mainstay markets like jewellery
and the autocatalyst sector, rather than experience short- and
medium-term price spikes caused by large deficits, which could do
long-term damage to demand.
The fall-off in jewellery demand experienced in 2004 is expected to
continue to affect the platinum market sentiment, with any further
evidence of palladium substitution likely to add to this
concern.
However, continued autocatalyst demand from the burgeoning diesel
sector, expected dollar weakness and the unlikely announcement of
many new projects, given the unexpected and persistent strength in
the rand, should see the current price level maintained.
Platinum is therefore expected to remain firmly in the mid-$800/oz
range during 2005.
The existence of above-ground stocks of palladium and the increase
in primary supply from UG2 projects are likely to reduce the
possible benefits of the high price difference between palladium
and platinum, which should encourage increased substitution.
The palladium price is expected to remain between $180/oz and
$215/oz for most of the year, with the possible liquidation of
large speculative positions increasing the downward pressure on the
price.