Dave Forest, a columnist for Oilprice.com says: “I wrote two weeks ago about substantial production cuts coming in platinum. And now it looks like the situation is about to get more dire”.
That’s according to a report released this week by industry watchdog World Platinum Investment Council, which shows that the 100,000 ounce/year production cuts announced last month are just the tip of the iceberg for this sector in crisis.
The WPIC report shows that platinum production in South Africa–the world’s largest platinum producing nation–is likely to fall by 600,000 ounces, or 16%, next year, touching 3.4 million ounces–down from a forecast 4.06 million ounces in 2015.
The data revealed by the report shows the South African platinum sector has been decimated with capital investment in operations falling by 63% since 2008, amounting to $1.5 billion in lost funding.
Investment in the industry is now at its lowest level since 2005 and the decrease in funds has corresponded directly with a precipitous decline in platinum output.
All of these suggest that the South African sector is in a tailspin. One that is unlikely to reverse soon–given that platinum prices are languishing at their lowest levels since the financial crisis of 2008. At the same time, miners are facing rising costs for key inputs like labor and power.
That raises some gaping issues for the platinum market, namely, what happens when a place that produces 68% of the world’s metal supply sees a critical decline in its mine output?
There have been many analysts (including myself) forecasting a deep and coming platinum supply crunch–and so far “we’ve been dead wrong”. But news like this suggests the future for this market is increasingly uncertain, and prone to surprises.
Platinum is among the world’s rarest and most valuable metals, prized for its strength and its contribution to cleaner air, cancer care and electronics.
Almost three-quarters of world production comes from a single place—South Africa—leaving the metal and the country’s politics inextricably linked. For many platinum miners, things haven’t changed much in the 21 years since apartheid ended, offering a familiar contradiction between the luster of the metal, along with its precious cousins, gold and diamonds and the fortunes of the people who dig it out of the ground.
