On demand side, the global economic recession caused platinum demand in the car and jewelry sectors to enter a cyclical downturn.
However, a substantial supply reduction due to the labour strife in South Africa moved the platinum market from surplus to deficit over the course of 2012.
The writing is on the wall: new supplies from stable jurisdictions like Canada are necessary and, as the trend toward their development and acquisition begins to develop, these new suppliers and potential suppliers will arouse increasing attention from investors.
Steady performance in auto catalyst demand as falling vehicle production in Europe will be offset by growth elsewhere
Europe remains by far the largest market for diesel cars, accounting for roughly 27% of total global demand. Weighed down by recession, spending cuts and high unemployment, the automotive market continuing to slip in the Eurozone. The European Automobile Manufacturers’ Association is forecasting a 17-year low for full-year sales in 2012; a more severe contraction of 8% to 10% versus the 7% drop it projected earlier.
Weakness in Europe has been largely offset by the increase in platinum buying by Japanese manufacturers as output improves following last year’s natural disasters, according to specialty chemicals company Johnson Matthey. Greater demand is also expected from the light duty diesel sector in India, where sales have grown strongly in 2012.
Jewelry sector has strong performance in China, India
Johnson Matthey notes that demand for platinum in the jewelry sector is expected to reach a three-year high of 2.73 million ounces.
The bright spot remains China, the world’s largest platinum jewelry market. In the first eight months of 2012, Chinese platinum demand rebound was driven by lower average platinum prices and an increase in the manufacturing of platinum jewelry to stock new retail stores in second- and third-tier cities. Gross demand for the jewelry in China is expected to increase by 14% overall in 2012, according to Johnson Matthey. Meanwhile, consumer demand for platinum jewelry in India has continued to grow, prompting an expansion of platinum jewelry manufacturing and retailing.
South African platinum supply to fall to lowest level since 2001
Anglo American Platinum, Impala Platinum and Lonmin PLC (LMI) are South Africa’s largest three platinum producers, combining to account for 64% of global platinum production and 89% of South Africa production.
Violent labour unrest in the South Africa mining industry intensified this year, starting in January with a stoppage by workers at Impala, the world’s second-largest platinum producer, followed by an illegal six-week strike that began August at Lonmin PLC’s Marikana platinum mine. The world’s largest platinum producer, Anglo American, saw labour stoppages shut down their Rustenburg mine in October.
Months of unrest have decimated South African platinum output. Stillwater, one of the few major platinum producers outside South Africa, concludes that this year’s strikes at Impala, Lonmin and Amplats could reduce 2012 global platinum group metals (PGM) production by up to an estimated 1.2 million ounces – 650,000 ounces of platinum, 170 ounces of palladium and 80,000 ounces of rhodium.
This corresponds to a 9% drop worldwide and a 13% drop for South Africa. This estimate is confirmed by Johnson Matthey in its latest Platinum 2012 Interim Review, which points out platinum supplies from South Africa are forecast to fall by 12% year-on-year to 4.25 million ounces, an 11-year low.
New sources from stable regions like Canada will come to be heavily relied upon in the near future
U.S. Geological 2012 Survey revealed that Canada ranks fourth out of the world’s platinum reserve base. In Canada, the Sudbury Basin in central Ontario has the largest number of PGM-producing mines, where platinum is produced as a byproduct of nickel mining.
The two major players in this area are Xstrata and Vale. Xstrata’s Sudbury operations consist of the Nickel Rim South Mine, Fraser Mine, a mill and a smelter.
The Nickel Rim South mine is currently Sudbury’s largest mining operation and is expected to provide high value ore feed for more than 15 years. Vale’s operations in Sudbury are among the largest in the world.
North American Palladium is the primary Canadian PGM producer. It owns the Lac des Iles Mine, near Thunder Bay in western Ontario; the only existing primary source of PGM in Canada. Ore from the mine is processed to a concentrate rich in palladium, while also containing small amounts of platinum and base metals.
A number of potential new sources for the future exist in other parts of the country as well. The Yukon Territory, a well-known gold rush region, hosts one such up-and-comer, Prophecy Platinum (TSX.V:NKL). Highly atypical of the area, the company’s flagship Wellgreen property is one of the world’s largest undeveloped nickel-sulphide projects and contains a unique platinum and platinum resource that creates very compelling economics.
It is an excellent example of PGM project being developed in a safe jurisdiction which could be poised, in terms of both timing and scale, to play an important role in the increasing prominence North American platinum production is expected to play in coming years.
New options needed
It is clear that the time to dedicate resources to explore new platinum mines and deposits outside South Africa has come. With a coming deficit market, new platinum projects in Canada patiently await inevitable courting by international platinum investors and producers. •
