Despite production and supply increases from South African producers, world platinum production is expected to remain in deficit this year, with rising restructuring and retrenchments geared to lower costs and help South African producers to stay ahead of the cost curve.
South African platinum group metals (PGM) producers such as Impala Platinum (Implats), Sibanye-Stillwater, Anglo American Platinum (Amplats), and smaller players such as Wesizwe Platinum, have been retrenching and restructuring their operations.
This has resulted in the closure of non-profitable shafts, laying off of mineworkers and curtailment of capital deployment into new and expansion projects.
Despite refined mine supply of platinum experiencing a 4% year-on-year increase in the second quarter of the current year to 1.5 million ounces, the global PGM industry is projected to remain in deficit, the World Platinum Investment Council (WIPC) said yesterday.
The growth in refined mine supply for the second quarter period has, however, been attributed to “growth from South Africa, which offset declines” from other regions.
“South Africa’s output rose by 7% year-on-year to 1.1 million ounces, underpinned by higher refining volumes from Amplats and Implats,” said the WIPC in its latest report for the second quarter of 2024.
This was despite the implementation of restructuring efforts and capital deferment programmes to ease margin pressure stemming from low PGM basket prices. This was worsening retrenchments across South Africa’s PGM industry.
“We estimate that South Africa’s PGM mining industry will have reduced its headcount by around 10 000 employees in 2024. This 6% headcount reduction is higher than our forecast that South African platinum production declines by 2% year-on-year in 2024,” explained the WIPC.
Although the South African PGM miners had met production guidance so far through 2024, if the backdrop of a shrinking workforce is considered in conjunction with lower capital expenditure, the risk premium for production erosion in the future escalates.
Against this background, South African platinum production has declined by 1.7% compound annual growth rate since 2006. This, according to the WIPC, illustrates “the challenges facing primary platinum supply” from South Africa, which has the world’s largest reserves of the precious metal.
The challenges faced by South African producers has prompted the WIPC to dim its view of global platinum supply. It said in its report that total mined platinum supply is forecast to decrease 2% year-on-year to 5.5 million ounces and attributed this to the “anticipated declines in South Africa” as well as from Russia.
“South African supply is expected to fall by 2% to 3.8 million ounces, as cost-driven restructuring efforts offset growth from project ramp-ups,” said the WIPC.
This comes as the drop in PGM prices has exerted significant margin pressure across much of the South African miners’ cost curve. In reaction to this, South African producers had announced a series of cost-cutting measures for 2024, including the workforce reductions, deferred project development, reduced capital expenditure and infrastructure closures.
Although the full impact of these actions on production volumes was likely to be more pronounced post the current year, the WIPC said South Africa’s mine supply forecast for this year was already approximately 500 000 ounces lower compared to pre-Covid levels.
Overall, the global platinum market deficit is projected to touch 1 million ounces for this year against an expected increase of 3% in total demand to 8.1 million ounces.
Investment demand of 517 000 ounces is forecast for the year, boosted by ETF inflows and strong growth in bar and coin demand in China, while a jump in jewellery demand in the second quarter is expected to contribute an overall 7% increase.
The forecast demand for PGMs from the automotive sector is seen at a seven-year high of 3.3 million ounces, while industrial demand is forecast to increase 1% this year.
BUSINESS REPORT