COMMODITY Insights Bulletin - Platinum Q4, 2015 - Q1, 2016

COMMODITY Bulletin - Platinum Q4, 2015 - Q1, 2016

We saw companies in the platinum industry writing down assets to account for the expected slower recovery of the platinum prices and the reduction in supply. The focus on closing and restructuring loss making production is continuing. The limiting of capital expenditure currently could have the effect that the supply base may be impacted in the next few years and this will result in some price recovery, estimated around 2019.

Commodity Lead, Platinum

KPMG in South Africa

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The focus of the South African miners, who produce more than half of the world’s platinum supply, remains on efficiencies, cutting uneconomical output, cost containment and cash preservation mainly through limiting capital expenditure. The South African miners benefited from a weaker South African Rand in Q1 2016 and uncertainty about the country losing its investment grade status, upcoming elections and wage negotiations in Q2 2016 could further impact the Rand weakness. It seems that the unions currently do not have the appetite for long strike periods during the wage negotiations.

 

The challenge for platinum miners to survive will continue in the next year or two.

Price outlook

Platinum and palladium prices1 fell 20 percent since the start of 2015 as a result of a strong US dollar, weaker demand from China and a continued ramp up of production in South Africa. These factors have increased market uncertainty dampening investor sentiment.

 

Prices for platinum declined by 8 percent in the six months ending March 2016 and prices for palladium declined by 15 percent over the same period. Moderately falling gold prices and a persistently weak Rand are two further headwinds for platinum in 2016. However, prices are expected to stabilize, if platinum producers reduce supply and recovery of demand from Asian countries.

 

Prices for platinum are expected to increase at a marginal CAGR of 1.1 percent from US$1,105.7/oz in 2015 to US$1,153.7/oz in 2019. Those for palladium are expected to increase at a relatively higher CAGR of 2.0 percent to US$785/oz in 2019.

 

1 Sources: Price Charts, Platinum Today, Deutsche Bank, 2Q16
commodities quarterly: short term fundamentals unchanged via Thomson Research, accessed April 2016

Source:  Price Charts, Platinum Today, accessed April 2016

Sources:  Capital IQ consensus prices; Deutsche Bank, 2Q16 commodities quarterly: short-term fundamentals unchanged, via Thomson Research, accessed April 2016

 

Orange boxes in the above graphs represent demand fulfillment capability; defined as the percentage of global annual demand of platinum/palladium, which can be met from existing global annual supply of platinum/palladium.

*Actual numbers for 2015 are not available in the broker reports, leveraged to build this CIB; F refers to forecast data

Supply and demand

Supply2

 

  • Global platinum supply is expected to increase by 1.6 percent, reaching about 7,341 kilo ounces (Koz) in 2016 as compared with 2015. However production from South Africa, which accounts for 57 percent of the total output is expected to reduce in 2016 due to industrial strike from environment concerns, safety stoppages and a shaft closure due to fire. Major mining companies including Anglo American has been selling off their South African platinum mines due to limited profitability.
  • Global supply of platinum is expected to increase at a CAGR of 9 percent from 7,227 Koz in 2015 to 7,889 Koz in 2019.
  • Global supply of recycled platinum is expected to rebound in 2016 driven by increased demand from platinum autocatalysts used in automobiles and platinum used in jewelry recycling.

 

2 Deutsche Bank, 2Q16 commodities quarterly: short-term fundamentals unchanged, via Thomson Research; Scandals and strikes: an uncertain future for platinum in South Africa, January 2016, Mining-technology website, accessed April 2016 

Source: Deutsche Bank, 2Q16 commodities quarterly: short term fundamentals unchanged, via Thomson Research, accessed April 2016

*Actual numbers for 2015 are not available in the broker reports, leveraged to build this CIB; F refers to forecast data

Source: Deutsche Bank, 2Q16 commodities quarterly: short term fundamentals unchanged, via Thomson Research, accessed April 2016

*Actual numbers for 2015 are not available in the broker reports, leveraged to build this CIB; F refers to forecast data

Demand3

 

  • Platinum demand is expected to increase by 3 percent, reaching about 7,471 Koz in 2016 as compared with 2015. Despite the reduced demand in autocatalyst, the platinum market is expected to witness strong demand growth from industrial and chemical segments in North America, Western Europe and China. Greater global demand for oil refining and a swing from refinery reductions to net capacity expansion will increase demand from the petroleum sector.
  • Global jewelry sales contracted in 2016 affected by a fall in Chinese demand in Q1 2016. In contrast, demand for platinum in India surged by 26 percent on the back of strong bridal growth and increased sales of men’s jewelry.

 

3 Forecasting platinum supply and demand, January 2016, Platinum investment website; Deutsche Bank, 2Q16 commodities quarterly: short-term fundamentals unchanged, via Thomson Research, accessed April 2016

Source: Deutsche Bank, 2Q16 commodities quarterly: short term fundamentals unchanged, via Thomson Research, accessed 13 April 2016

*Actual numbers for 2015 are not available in the broker reports, leveraged to build this CIB; F refers to forecast data

Source: Deutsche Bank, 2Q16 commodities quarterly: short term fundamentals unchanged, via Thomson Research, accessed April 2016

*Actual numbers for 2015 are not available in the broker reports, leveraged to build this CIB; F refers to forecast data

Key developments

Ownership changes4

The total value of deals more than doubled to US$713 million in Q1 2016 from US$260 million in Q4 2015. The number of deals increased to two during Q1 2016 from one deal in Q4 2015. The two deals during Q1 2016 include:

 

  • On 10th March 2016, Boliden AB signed a definitive agreement to acquire Kevitsa mine from First Quantum Minerals Limited for US$712 million. Kevitsa mine is a Finland-based nickel, copper, gold, Platinum Group Metals (PGM) mine producing 31,899 ounces of platinum. The transaction is expected to complete in May 2016.
  • On 1st February 2016, US - Condoto Platinum NL (Condoto) of Australia agreed to acquire the entire share capital of GPS Metals Labs Inc, a San Diego-based provider of precious metal & mining services for 45 million Condoto ordinary shares valued at US$0.675 million.

 

4 MergerMarket and Thomson One accessed April 2016

Source: MergerMarket and Thomson One accessed April 2016

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