However market outcomes tend to confound initial expectations. Rather create oligopolistic type outcomes, miners have mostly tried to produce as much as possible. And rather than be profitable, the platinum industry is severely struggling. It turns out platinum is not just one of the most difficult commodities to mine, but also to market.
The pressure of low metal prices, rising costs and more recent clashes with unions has lead to a reassessment of production from the largest producer Anglo American Platinum. This is perhaps overdue in the eyes of many, but has nonetheless seen a meaningful spike in prices. Platinum traded above gold yesterday, although has since retreated and prices are still well below levels seen in 2011.
Anglo has announced several measures as part of its year long review. The headline grabbing measure is the closure of high cost operations at Rustenburg mines. These are some of the oldest mines on the Bushveld, requiring large amounts of sustaining capex just to keep production steady given deeper shafts and deteriorating ore grades.
Anglo announced that putting its Khomanani and Khuseleka operations on care and maintenance would remove ~400koz from its longer run production profile. This is probably overstating the impact as few believed they would ever get to the levels Anglo were projecting. It is also difficult to know exactly how much these operations were producing in 2012 as we don't have specifics on the impact of strikes. But in total it should take ~200koz out of the forecast horizon. This is a lot in a market of ~5.8moz.
Potentially a bigger issue for the industry in South Africa is that Anglo plans to "restructure" 14,000 jobs, 10,000 of which are directly involved in mining. This is will no doubt anger militant unions, with the government expressing its shock at the decision.
While this newsflow has driven the recent jump in prices, I think such a move was well overdue before this announcement. While we are yet to get details of the full damage to platinum supply in 2012 from the violent strike action that affected all producers, it does look like platinum mine supply has shrunk even more than most are expecting. Just looking at Angloplats, they have most recently announced that the strike action in 2H12 cost them ~300koz of production. This is on top of a likely loss of 100-150koz in the year before the strikes occured.
And this is just Angloplats. Just about all producers were heavily affected into year end, with some mothballing mines and expansions. Subsequently the loss of production will be much more than Johnson Matthey are forecasting, and deficits larger than the ~400koz projected back in November 2012.
So why aren't prices higher? Demand is holding together for non-auto/industrial demand because prices have been weaker, with Chinese jewellery demand rising.
Demand from auto makers, for which demand is less elastic, is not doing too much. Most diesel cars are for the European market, where sales have shown no signs of abating their recent slide. Platinum is also being thrifted out of autocatalysts and scientists have discovered ways to increase the amount of cheaper Palladium metal and ensure unchanged results in catalysts.
