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Amplats' force majeure to tighten PGM supplies; BMO hikes price forecasts

Kitco News

(Kitco News) - Analysts say the supply/demand deficit for palladium will deepen this year as a result of a furnace explosion at an Anglo American Platinum plant, while the cutback will probably erase a surplus that had been expected for platinum.

One bank, BMO Capital Markets, issued a report early Wednesday hiking its price forecasts for platinum group metals in 2020.

Amplats, the world’s second-largest platinum producer, declared a force majeure Friday and cut its guidance for output of platinum group metals after an explosion resulted in the shutdown of Anglo Converter Plant processing facilities in South Africa. The explosion at a phase A unit occurred in February at the Waterval smelter. Original plans had been for a phase B unit to take over production, but water detected in the furnace meant the risk of another explosion, so the company shut down the plant, Amplats reported.

Amplats estimated repairs to the phase B unit would take 80 days, while repairs on the other unit would not be completed until early 2021. The company also refines platinum group metals from several other producers, including Sibanye-Stillwater, African Rainbow Minerals, Royal Bafokeng Platinum and Siyanda.

Amplats revised platinum guidance to between 1.5 million and 1.7 million ounces, compared to between 2 million and 2.2 million previously. Palladium guidance was trimmed to between 1.1 million and 1.2 million ounces from 1.4 million to 1.5 million ounces.

“In total, if alternative processing routes are not found, the disruption could represent up to 10% of platinum, 5% of palladium and 12% of rhodium 2020 global mine supply,” said a research note from the consultancy Metals Focus.

If so, this could increase the palladium-supply deficit by 40% and more than double the deficit in rhodium, Metals Focus said.

Both the consultancy and BMO said they now anticipate a balanced platinum market this year, whereas previously many analysts had been anticipating a surplus. Prior to the Amplats explosion, the World Platinum Investment Council last week projected a platinum surplus this year of around 115,000 ounces. Commerzbank suggested that the lowered platinum output could even push the global market into a supply deficit.

“The palladium and rhodium markets are already extremely tight and such a development would add further fuel to the fire,” said Metals Focus about historically high prices. “This tightness is a reflection of healthy gains forecast for automotive demand of both metals in 2020, as a result of tightening emissions legislation.”

BMO noted that car sales are weaker at the moment in response to the coronavirus outbreak. “However, should we see governments look to support growth by boosting auto upgrades into H2, in a constrained supply environment we could see even more price pressure,” the Canadian bank said.

BMO pointed out that one other piece of major news hit the PGM market in recent days. Sibanye-Stillwater, Impala Platinum and chemical company BASF announced development of a new auto catalyst in which some of the palladium used in light-duty gasoline-powered vehicles could be substituted with less-expensive platinum.

As of the result of this and the Amplats news, BMO said it increased its platinum price forecast by 6% this year to $988 an ounce from $931 previously. The bank also said it expects the metal to outperform palladium while the Amplats facilities are idled. The bank projects $1,000 platinum in 2022.

BMO now expects palladium will average $2,600 this year, up from $1,863 previously, before falling to $1,875 next year.

“Our [forecasts for] rhodium prices for 2020 and 2021 have risen over 100%,” BMO said. The bank forecast $12,750-per-ounce rhodium this year, up 129% from a prior forecast of $5,563. The 2021 forecast was hiked to $8,625 from $4,000 previously. This metal was already priced high amid supply tightness.

Amplats will continue mining operations while repairs are occurring, but will not be able to undertake refining. However, analysts said this eventually will mean a rise in PGM production down the road whenever the backlogged concentrate is processed.

“As such, there will be a positive effect on global mine supply in 2021 and potentially into 2022,” Metals Focus said.

Metals Focus noted there is some spare processing capacity within the industry, particularly at Sibanye-Stillwater’s Brakpan refinery.

“In part, the rationale behind Sibanye-Stillwater’s purchase of Lonmin was the potential to treat Rustenburg concentrate from 2021,” Metals Focus said. “The current force majeure may accelerate that transition.”

Otherwise, Metals Focus said, industry smelting capacity appears constrained, with other producers either undertaking planned maintenance this year or already processing a backlog of inventory from smelter maintenance last year.

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