Analysts: Implats Output Cut Could Mean Bottom For Platinum Prices
(Kitco News) - Platinum prices are sharply higher on a day when the world’s second-largest producer announced plans to cut supply, and analysts say this may be just the catalyst the market needs to avoid falling any further through the recent lows.
Most analysts have characterized the platinum market as being in a surplus this year, particularly as consumption of the metal is dinged by less demand for diesel-powered vehicles. Platinum is a critical component in catalytic converters.
However, on Thursday, second-largest producer Impala Platinum – also known as Implats -- said it plans to cut 13,400 jobs over the next two years. The company plans to reduce the number of shafts from 11 to six, with production falling to 520,000 ounces annually from 750,000.
Resistance from the government and unions is expected in a nation with a high unemployment rate. Sibanye-Stillwater aims to cut jobs over three years at acquisition target Lonmin, according to news reports.
Still, depending on what happens with investment demand, “it certainly could move the market into a deficit,” said Bart Melek, head of commodity strategy with TD Securities.
“This is a further sign that the platinum industry is finally reacting to the weaker fundamental environment seen over the past couple of years as diesel share of European power trains dropped significantly,” said a research note from BMO Capital Markets. “While the potential union pushback is yet to be seen, such rationalization of supply may well mark the bottom in platinum pricing.”
Melek offered a similar sentiment, although he cautioned this hinges on what happens with the escalating trade war. Should this hurt demand for autos, then demand for platinum would also fall.
However, Melek said, “all things being equal, we could have seen the worst of it [for platinum prices].”
As of 11:09 a.m. EDT, Nymex October platinum was $18.90 higher to $836.10 an ounce, rising sharply even though precious-metals-sector leader gold was lower. In mid-July, the October platinum contract fell as far as $794.50 after having traded above $1,000 an ounce in January and February.
George Gero, managing director with RBC Wealth Management, also commented that the Implats news could be the catalyst that the market needs to have finally established a bottom. One thing in the metal’s favor, he added, is that most supply comes from South Africa, thus demand presumably would not be hit by direct tariffs in the trade war between U.S. and China.
“The Chinese continue to use it, but it’s not something they purchase from the U.S. directly,” Gero added.