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Platinum Crisis: South Africa’s Mining Industry on the Brink

The CEO of Northam Platinum warns that the sector is facing the worst situation in three decades due to low prices and high costs

by Victor Adetimilehin

South Africa is home to the world’s largest reserves of platinum, a precious metal that is used in catalytic converters, jewelry, and medical devices. But the country’s platinum mining industry is struggling to survive amid a prolonged slump in prices, rising costs, and social unrest.

According to Paul Dunne, the CEO of Northam Platinum, the fourth-largest producer of platinum-group metals (PGMs) in the country, the situation is “the worst crisis I have seen in three decades, on a relative basis.”

“The squeeze on the industry is severe,” he told journalists on Friday, adding that he could not see any signs of a quick rebound in the market.

Low demand, high supply

One of the main reasons for the platinum crisis is the low demand for the metal, especially from the automotive sector, which accounts for about 40% of global consumption. Platinum is used in diesel vehicles to reduce harmful emissions, but the popularity of diesel cars has declined in recent years due to environmental concerns and regulatory changes.

At the same time, the supply of platinum has remained high, thanks to the increased production from other countries, such as Russia and Zimbabwe, and the recycling of scrap metal. This has created a surplus of platinum in the market, which has pushed down the prices to their lowest levels in more than a decade.

According to the World Platinum Investment Council, the global market balance of platinum in 2023 amounted to a deficit of about 400,000 ounces, down from a surplus of approximately 200,000 ounces in the previous year. In 2024, it is expected that platinum will again have a global market deficit, of some 300,000 ounces.

However, this is not enough to boost the prices, which have fallen by more than 60% since their peak in 2011. On Friday, platinum was trading at $872.75 an ounce, while its sister metal palladium, which is used in gasoline vehicles, was at $944.68 an ounce.

High costs, low profits

Another challenge for South African platinum miners is the high cost of production, which is driven by various factors, such as labor, electricity, and security. The country’s mining sector has been plagued by frequent strikes, power outages, and violence, which have disrupted operations and increased expenses.

Dunne said that the average cost of producing an ounce of platinum in South Africa was around $1,000, which means that most miners are operating at a loss or with very thin margins. He also said that the depreciation of the South African rand, which has lost more than 20% of its value against the US dollar in the past year, has provided only limited relief for the industry.

As a result, many platinum miners have resorted to cutting jobs, halting projects, and selling assets to stay afloat. Anglo American Platinum, the world’s largest producer of PGMs, said it plans to cut 3,700 jobs, while rival Sibanye Stillwater has also laid off about 2,600 workers. Impala Platinum, the third-largest producer, said it may decide within six months to close loss-making shafts, if prices do not improve.

Northam Platinum, however, has not announced any job cuts or closures but has also held back spending on projects. Dunne said that the company was focusing on improving its efficiency and productivity, as well as diversifying its portfolio to include other metals, such as rhodium, ruthenium, and iridium, which have higher prices and demand.

A ray of hope

Despite the bleak outlook, some analysts and industry experts believe that there is still hope for the platinum sector, especially in the long term. They point to the potential of new applications and markets for the metal, such as hydrogen fuel cells, jewelry, and investment.

Hydrogen fuel cells are devices that use platinum as a catalyst to convert hydrogen and oxygen into electricity and water, without producing any emissions. They can be used to power vehicles, homes, and industries, and are seen as a key component of the transition to a low-carbon economy.

According to the International Energy Agency, hydrogen technologies already have more than $570 billion in announced investments through 2030 and have the potential to add significantly to platinum demand growth.

Moreover, platinum is also attractive as an investment asset, especially for those who are looking for a hedge against inflation, currency fluctuations, and geopolitical risks. Platinum bars, coins, and exchange-traded funds (ETFs) are some of the ways that investors can gain exposure to the metal.

Dunne said that he was optimistic about the future of platinum and that he expected the prices to recover eventually. He also said that the industry needed to work together to promote the benefits and uses of the metal, and to stimulate the demand from various sectors.

“We have a wonderful product, platinum, that has a lot of attributes that are very relevant for the world today and tomorrow,” he said. “We just need to get the message out there.”

Source: Reuters 

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