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Platinum panic, rhodium rout as supplies threatened in the short and long term

With South Africa's platinum mines likely to be closed as far as new production is concerned until at least the end of this week, a major supply squeeze is causing the price to surge. Byproduct rhodium is hitting new records too.

Author: Lawrence Williams
Posted: Monday , 28 Jan 2008

LONDON -

With all the major South African underground platinum mines closed until the state-owned electricity supply corporation, Eskom, can guarantee to keep them supplied with sufficient power to maintain mineworker safety, the platinum group metals in shortest supply - platinum and rhodium - are seeing new price records broken daily as consumers panic over security of supplies.

Platinum is now in the $1720s having risen around $140 an ounce since last Thursday ahead of the announcement of the power-relates mine shutdowns in South Africa. Rhodium, which is a small, but very tight, market, is also at new record levels of around $7100 - a significant rise although not such a dramatic one as for platinum in percentage terms. (As a guide, platinum started the year at $1530 an ounce and rhodium $6850.)

With South Africa controlling about 70 percent of new mine supply for these metals, any supply interruption will be significant in price terms, but as Investec analyst Rebecca O'Dwyer said in a note today, subsequently reported by Reuters, "Before the power crisis, we were forecasting a platinum deficit of 150,000 ounces at the end of 2008. If all platinum mines were shut for one week, this could increase the deficit to in excess of 260,000 ounces."

"The platinum price rose US$81 an ounce on Friday after the news of the mine closures. If there is a prolonged shut-down of South African mines we believe the price could spike significantly higher," said O'Dwyer.

With rhodium there is again a very tight market and while the price increases here have not been as spectacular as for platinum (up around 25 percent in the past 12 months) there could be further substantial increases ahead should the mining interruptions be prolonged.

At the moment it is still uncertain when the mines will reopen for production. They now have enough power for necessary maintenance and safety work and there is talk of operations being back on stream by the end of the week. But, no-one really knows yet! There will be another round of meetings with Eskom on Wednesday and it is felt that if the power utility can supply 90 percent of a mine's normal needs, this should be enough to bring them back into production. But, it is not only the mines which are suffering from the power cuts and other South African industrial users are also hurting badly and their needs will also have to be taken into account.

Altogether it looks like taking two to four weeks before Eskom can bring enough power back on line for any semblance of normality, but any major breakdown at one of the major power plants will switch the lights out again!

Looking ahead, Eskom states that its programme to construct new facilities won't be completed until 2013. This is serious for the platinum sector in the medium to long term because virtually all the world's new platinum mining projects are in South Africa. If power needs to be rationed in any way - and it looks like this will be the case until at least early into the next decade - then new projects are likely to be at the bottom of the priority list. Given South Africa's huge supply dominance, this means that platinum - and rhodium - may well now be in continuing short supply until 2013 or later.