Platinum: Marginal cost will guide the price over the medium term

UNITED STATES July 14 2015 9:07 AM

NEW YORK (Scrap Register): The demand indicators for Platinum remain a mixed bag, with European Auto sales performing well, and Chinese jewellery sales starting to pick up.

However Chinese imports and trading on the SGE are still weak relative to last year. Platinum has continued to de-rate versus gold and now trades at a $110 an ounce discount, in part due to the weak Rand and a strong production performance by the SA producers.

Deutsche Bank thinks the platinum price will be heavily influenced by the marginal cost over the next few years, but at current levels, c.40% of the industry is loss-making or close to breakeven.

Deutsche Bank thinks this is overdone. It is unlikely that there will be any meaningful mine closures, but we would look for further indications of cash preservation from some of the SA producers, which in our view will be the catalyst to see a price recovery.

In this review, Deutsche Bank has also considered the long-term outlook for the industry. Our key conclusions are that the market will be well supplied from stocks until the early part of the next decade.

Demand growth rates are likely to slow, and current projects being developed in tandem with increased levels of Autocat recycling will offset depletion. In this environment, marginal costs will drive the pricing, heavily influenced by the South African Rand.

Deutsche Bank estimates that it is only by the middle of the next decade that more (in addition to those currently being developed) primary platinum mines will be needed. However these mines will need a price significantly higher than current spot prices. Deutsche Bank estimates an incentive price of ZAR20,000/3 PGM oz.