Platinum market headed for ‘substantial’ supply shortfall, says industry body

A global shortfall in the supply of platinum is likely to drive up prices, according to a new report, adding to concerns that a proposal for miner Anglo American to sell its South African interests in the industrial metal could mean it misses out on a revival in the sector.

A proposed £30bn-plus takeover by BHP of its rival includes spinning off the Anglo American Platinum unit through a stock market listing. Anglo rejected BHP’s revised offer on Monday.

But according to a report on Monday from industry body the World Platinum Investment Council, global demand for the metal — which is used in the production of catalytic converters that help cut harmful emissions — will exceed supply by 476,000 ounces this year, equivalent to 6 per cent of annual demand.

While that projected deficit is below last year’s 851,000 ounces shortfall, the industry body said it would still be “substantial” and higher than it had been predicting in March. That is due to a slowdown in production from South Africa, even though the power outages that have plagued the country’s mining industry are easing.

Sustained shortages of platinum group metals — which also include palladium and rhodium — could help reverse the price declines of recent years, which were driven by speculation that demand would falter as electric vehicles displace combustion engine cars.

“The ongoing deficit should tighten market conditions,” said Edward Sterck, director of research at the WPIC. “Ultimately we can expect this to be reflected in price expectations.”

Platinum traded up 1 per cent at $1,004 per ounce on Monday, having risen above $1,300 in early 2021.

The structure of the deal proposed by BHP last month has intensified questions among investors about the metal’s attractiveness as an investment. The prospect of sustained deficits adds to concerns that a separation of Anglo’s assets could force existing investors in the stock — many of whom are likely to have pre-determined limits on how much they can hold in South Africa — to sell out of the platinum unit at the bottom of the cycle.

This would mean they miss out on higher prices later if supply shortages persist and demand remains resilient, for instance if the shift to electric vehicles — which do not require catalytic converters — proves to be slower than predicted.

The WPIC report comes as executives arrive in London for the annual Platinum Week conference, where the sector’s recent woes and the future of the biggest producer, Anglo American Platinum, are likely to feature.

Anglo’s platinum business earlier this year announced a plan to cut its workforce by almost a fifth. Competitors Sibanye-Stillwater and Impala Platinum are also eliminating thousands of jobs as they seek to reduce costs in response to price falls.

Some industry players believe that such measures could further constrain supply and set up the market for a future price rally as producers, having downscaled their operations, struggle to increase output quickly again to meet demand.

Anglo American’s chief executive, Duncan Wanblad, who is under pressure to devise an alternative strategy for the JSE-listed mining company, said earlier this year that he was resistant to “making asset sales at the wrong time in the cycle”.

“Going forward those [PGM] metals look very attractive,” said Django Davidson, a partner and portfolio manager at investment firm Hosking Partners in London, who has argued that Anglo could attract other bidders who “see value in the [platinum group metals] business because it looks like the cycle could be turning”.

But some analysts argue that a shortage in production will not necessarily translate in to higher prices because stocks built up during the pandemic will help to meet demand from industrial customers.

Johnson Matthey, a London-listed catalyst technology group, last week said the deficit in platinum will be the most in a decade.

“Even though there is downside risk to supply, that doesn’t necessarily translate [to higher prices], particularly in this environment,” said Rupen Raithatha, market research director at Johnson Matthey, citing platinum stocks that have already been mined.