The markets for PGMs proved to be volatile once again in 2011. Global auto sales continue to show growth while Platinum supplies are under continued pressure as a result of South African production disruptions.
Platinum – Supply and Demand
The platinum market experienced a small surplus in 2011. Overall demand was 7.36 million ounces. Total refined platinum supply totaled 7.4 million ounces including 1.0 million ounces of recycled metal.
The automobile industry accounted for 3.2 million ounces of demand as global automobile sales increased to 81.8 million units. Emerging markets (China, India ,and Brazil) continue to see growth in auto sales while the European market is struggling. Sales in the United States remain strong.
Jewelry accounted for 1.9 million ounces of demand in 201 with Chinese consumption accounting for close to 80% of global jewelry demand.
Investment demand via several ETF listed products continued to add volatility to the platinum market. Currently, there are approximately 1.5 million ounces of platinum representing global physical investment demand.
Outlook
Supply from the South African PGM mining industry continues to be constrained.
The legacy producers are faced with challenging ore bodies as increasing depth and diminishing grades erode profitability. Recent strife in South Africa has added a new level of uncertainty around supply as cost escalation related to labour has become a continuing trend. The major South African PGM producers have deferred capital investments due to a lack of certainty and operating flexibility. Their ability to ramp up production when demand resurfaces is highly unlikely. Given the vast majority of primary PGM production comes from South Africa, higher metal prices will be required to incentivize future production.
Platinum Group Metals controls a portfolio of low cost assets. The WBJV Project 1 mine will be one of the few new mines brought into production over the next several years in South Africa. With a relatively low capital cost and strong operating margin at current metal prices, the WBJV Project 1 is well positioned to overcome the hurdles facing existing producers. The Waterberg Project, although at an earlier stage, holds significant potential as it will likely be amenable to mechanization limiting exposure to escalating labour costs.
7.36
million ounces of overall
platinum demand in 2011,
vs. a total refined platinum
supply of 7.4 million ounces
(including recycled).
3.2
million ounces of platinum
demand was from the
automobile industry in 2011,
as global automobile sales
increased to 81.8 million
units that year.
50%
of cost in a conventional
platinum mine is for labour
The Rand exchange rate
to the US dollar plays and
important role
