HERE's a REAL PLATINUM ANALYST'S report:
ORIGINALLY PUBLISHED 7/9/04;
Dug out/dusted off/proferred here as counterpoint this AM--- after Jessica Cross' Shanghai soundbytes last week....
Platinum Warning
One of South Africa’s most experienced platinum analysts forecasts a sombre outcome if platinum demand continues to outstrip supply.
René Hochreiter, of Nedcor Securities, who has been studying the platinum industry with unbroken intensity for the last 17 years, tells Mining Weekly in an exclusive interview that the platinum price could spike to as high as $3 000/oz if demand is anywhere near what he estimates and if supply does not meet his estimate (see table). Should that happen, he warns of a doomsday scenario for platinum to the advantage of palladium, nickel or whatever else can replace it as a substitute. {EDITOR: SEE COMMENTARY BELOW FOR DEBUNKING OF NICKEL AS A CATALYSIS SUBSTITUTE}
He believes the platinum price would then plunge to $300/oz and $400/oz and mirror the rhodium collapse of the 1980s.
To avoid a platinum apocalypse, he recommends that every effort be made now to lay the foundation for the production of more platinum in the future.
He recommends that South Africa’s and the world’s largest platinum producer – Anglo Platinum – should reverse the project-slowdown programme that it introduced last year.
“I think Anglo Platinum, in not growing faster, is playing a dangerous game because if the company does not increase production to higher levels quicker than planned, world supply may not come out at 7,9-million ounces by 2006, which will have an immense impact on the platinum price,” he forecasts.
He believes that, ideally, Anglo Platinum should reverse its project cutback, raise double the money that it did in last month’s R4-billion rights issue and reinstate its original 3,4-million-ounce-a-year target that it adjusted down to 2,9-million ounces last November.
Hochreiter warns that Anglo Platinum’s project review is fuelling perceptions that the platinum industry is unable to manage down its perennial platinum supply deficits.
The industry’s only consolation is that the only known viable alternatives to platinum are all in the platinum-group metals (PGMs) basket. {EDITORIAL COMMENTARY: and that, FOLKS, is the problem!!!...it can be explained by chemistry}
“If the rand doesn’t weaken, I can guarantee that the platinum price will go through $1 000/oz,” says Hochreiter, whose nigh-two-decade forecasting record is unblemished.
(EDITORIAL: and it will NOT weaken because the DOLLAR is scheduled to weaken...NOT the rand!!!!!}
He concedes that the platinum industry has managed to work its way through prolonged periods of platinum deficit in the past, recalling that production shortfalls endured for eight consecutive years when the US catalysed in the 1980s.
But he points to an abundance of Russian stocks coming to the rescue, stocks that have since been depleted and that are thus no longer available to save the day.
He emphasises that unless hidden stocks emerge or the market for platinum jewellery falls away at $900/oz – {b>which he doubts in view of strong Chinese jewellery demand continuing during the most-recent high-price period
{EDITORIAL...take THAT, Jessica Cross(snicker)}
.... there will be relentless and dangerous upward pressure on the platinum price. Despite the platinum industry generally regarding the jewellery market as a safety valve that protects platinum against price runaways, he points to Johnson Matthey’s most recent growth projections as now indicating that jewellery demand is an insufficient shock-absorber within the future high-demand scenario. (Ironically, as the price of platinum rises, the desire for platinum jewellery may rise commensurately.) This is what he believes Anglo Platinum should do on the basis that the platinum market is going to see continued deficits and that production should be stepped up to prevent the platinum price from “destroying itself”:
* Increase production over and above this year’s 2,3-million ounces in order to ensure that the world has a sufficient supply of platinum.
* Hold down costs by reducing labour numbers, thereby increasing efficiencies owing to people costs being 50% of overall costs.
* Mechanize wherever possible, as the currently strong rand makes mechanised equipment cheap.
* Improve metallurgical recoveries in smelting and refining; the platinum industry’s areas of greatest return.
* Raise enough money from whatever source to ensure that a sufficient number of new mines are built.
* Carry on building into the future to ensure an output of 4-million ounces by 2015.
By solely cutting costs, he fears that an outcome will be reached where the cost-cutting operation is a success but the patient dies.
Hochreiter is in the credible position of having been accurate on demand and supply forecasts and other forecasts for a large number of data points over many years (as analysed by a large South African financial institution).
As a consequence, he prefers to trust his own figures and he is looking at a 2,5-million-ounce deficit in 2015 that he forecasts may ramp the platinum price to $3 000/oz.
What concerns him is that an independent forecast of which he is aware, which takes into account unannounced new mines, reaches a deficit position that is even worse than his own over a shorter horizon.
In the last seven years, there was only one year when supply and demand were balanced; the consecutive deficit years totalling 2,5-million ounces.
He has pushed production in his forecasts to maximise the potential contribution from recycling, pushing recovery from 30% a year up to 45% a year in the short term.
{PLEASE NOTE:}
<font color=slateblue>But this is against the background of North America, which has been responsible for most of the catalysation for the past 30 years, managing to recover only 30% of platinum used in autocats, Europe providing another third and South East Asia-Japan yet another third.
Recycling is expected to recover some 1.5-million ounces a year by 2013, but this will still not be enough and heavy reliance on mining will remain.</font>
He finds that many appear to be trying to talk the platinum market down out of price-spike fears “because industry participants know that a spike will kill the industry”.
(EDITORIAL: Oh, Mr. H...don't SAY THAT...Jessica might be listening...tsk tsk!)
He estimates that, in 2006, global demand for platinum will be 8,10-million ounces and calculates that supply will be 250 000 oz short of that demand at 7,85-million ounces. “If demand is anywhere near what I estimate and supply doesn’t come up to what I estimate, the impact on the platinum price will be immense. “Let’s say it goes to $2 000/oz or $3 000/oz, which is what is being bandied about. If that happens, there will be a stampede out of platinum (for industrial or jewellery purposes) like nobody’s businessand the scales will probably be tipped in favour of palladium, nickel or whatever else can replace platinum at those high prices...
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[EDITORIAL NOTE BY POSTER: therein lies the problem...catalysis performed by Pt, is vastly different than catalysis performed by Pd and by Rh. AT THE CURRENT TIME THERE MOST ASSUREDLY IS NO SUBSTITUTION even on the drawing board, let alone in NICKEL...that is just wishful thinking by an analyst who doesn't have a PGM chemistry background]....
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Quoted excerpting continues:
.... and the platinum price will then collapse down to a low level of probably between $300/oz and $400/oz and all those new black economically empowered (BEE) operations that are supposed to be helping to transform South Africa’s economy will have to be stopped and the industry will suffer a setback that will take a very long time to restore.
“If the reaction to the price going too high results in the price falling back to that extent, the entire platinum industry will collapse in a heap,” he warns.
“Remember rhodium in 1988. It had been ticking along for years at prices of $1 200/oz to $2 000/oz when Anglo Platinum’s then newly-opened refinery had difficulties producing rhodium and its price rocketed from $1 200/oz to $7 000/oz, only to collapse in the next three years down to $150/oz and it has never recovered much beyond the current $830/oz since. Heaven forbid that the same thing happens to platinum.” But there are similarities.
(EDITORIAL: OHHHHH????????? Rhodium Reached $1,600 oz in last 2 calendar weeks...heh heh heh)
In rand terms, the platinum price has also been ticking along sideways for more than two years; costs are in rands and revenue in dollars, but those dollars are converted to rands and the rand price of platinum, which was R120 000/kg at the time of going to press, has been in the R115 000/kg to R120 000/kg band for 30 months. “Even if platinum is $1 000/oz, it’s the basket price that will still be flat because the rand and the platinum price are almost exactly correlated,” Hochreiter observes.
He sees last month’s R4-billion Anglo Platinum rights issue as proof that the shareholders of the company are perfectly happy to follow their rights; he would like them to support even more fundraising in order to capitalise the industry sufficiently.
He is pleased that the issue improved Anglo Platinum’s balance sheet and reduced debt to R2-billion from R6-billion.
He regards the entire exercise as the correct course of action in that it has made Anglo Platinum’s cashflow position far better than what it was it was two months ago.
But he believes the R4-billion is insufficient to capitalise the projects that are needed to satisfy future demand and he reckons that Anglo Platinum raises another R4-billion so that production can be ramped up to achieve the original 3,4-million ounces a year, despite the current tough macroeconomic parameters.
He sees demand as being even higher than that stated by specialist Johnson Matthey, which he regards as being exceedingly authoritative on autocatalytic converter information. He concedes that there is a reluctance to commit more capital expenditure to the construction of new mines because of the high current cost of building mines and the lower rand-constrained revenues.
He estimates that, to build a new 100 000-ounce-a-year mine today costs a round billion rands, which correlates with the R1,5-billion cost of building of the 160 000 ounce-a-year Modikwa, the Anglo Platinum-African Rainbow Minerals operation on the eastern bushveld.
With platinum’s rand price at R120 000/kg and cash costs at between R60 000/kg and R80 000/kg, directors of platinum companies regard the margin of profit as being too low to commit investment in new mines.
But for longer-term supply, he sees going ahead with such projects as being essential and believes projects should go ahead and measures taken simultaneously to lift mining performance.
SEE REST OF LENGTHLY ARTICLE AT:
miningweekly.co.za
Published: 2004/07/09
Author: Martin Creamer
engineeringnews.co.za |
