Are South African vaccine issues a threat to platinum supply as metal rallies above $1,200?
(Kitco News) - A number of analysts have pointed to potential supply disruptions among South Africa's platinum miners as the nation struggles to rollout vaccines to combat the COVID-19 virus; however, some research institutes said that investors should keep an eye on growing demand in the marketplace.
In further delays to the nation's vaccine plan, on Monday, the South African government said that it would not administer the Oxford-AstraZeneca vaccine after a small clinical trial suggested that it isn't effective in preventing mild to moderate illness from the variant dominant in the country.
Meanwhile, platinum prices have surged to a six-year high above $1,200 an ounce as South Africa has struggled to vaccinate its population. However, Trevor Raymond, head of research at the World Platinum Investment Council, said that he doesn't expect vaccine issues to have a major impact on the platinum supply.
He noted that mining companies in South Africa have experience dealing with a variety of outbreaks and health issues. He added that this experience had made mining companies extremely effective in combatting the COVID-19 pandemic.
"South African mining companies have created very good health structures with the communities where they operate," he said. "Companies have implemented onsite testing and onsite isolation. I think they have a very good handle on dealing with COVID-19, and I don't think vaccine issues will impact supply."
Raymond added that even if the mining operations were impacted because of the global pandemic, there is a big enough stockpile of unprocessed ore that would offset any mine issues.
Raymond noted that Anglo American Platinum (Amplats) has a stockpile of about 500 thousand ounces of unprocessed ore that was built up as the company spent most of last year rebuilding its converter plant.
The plant was damaged in late-March 2020 and significantly reduced platinum supply last year.
"The company said that it would take about two years to refile its stockpile, and that is at full capacity," said Raymond.
Instead of looking at the supply side, Raymond said that people should pay more attention to the demand side as investors continue to see platinum as a value play for gold.
"This rally we are seeing in platinum is a genuine recognition that the metal is significantly undervalued compared to gold and palladium," he said.
Raymond also noted that that platinum's rally comes as the market has finally normalized after experiencing major supply issues early last year due to the COVID-19 pandemic. The supply-chain disruption was felt across the precious metals sector as refiners, mints, and mines temporarily shut down across the globe.
Raymond said that along with the supply disruptions in South Africa, it took the platinum market a little longer to normalize than gold and silver.
"Since November, we have started to see liquidity return to the market, and we have seen margins fall, and as a result, more investors are paying attention to platinum," he said.
Commodity analysts at Bank of America are also not expecting to see any major supply disruptions in South Africa.
"While the nation has remained a focal point in the pandemic partially over the recent mutant strain, operators have managed to keep the wheels turning, with output hovering around the previous 5-year average between August and October," the analysts said in a recent report.
Bank of America noted that platinum fundamentals are improving as the market sees renewed demand. They noted that platinum jewelry demand is also on the rise, especially in China.
However, Bank of America said that growing focus on green hydrogen technology could have a significant impact on platinum demand.
The analysts said that they estimate platinum's demand could reach up to four million ounces within the next decade. "To put this number into context, annual platinum supply is about eight million ounces present," they said.
"That said, there is an upside to the estimate if governments accelerated investment in renewables and energy storage. Putting it all together, platinum fundamentals are strong in the medium-term, but the upside may be somewhat limited in 2021," the analysts said.