South African miners face a conundrum: increasing palladium and rhodium output to take advantage of soaring prices risks depressing the already fragile market for sister metal platinum.
That is because palladium and rhodium are mined as byproducts, with every extra ounce of the former typically coming with two to three additional ounces of platinum.
Stricter emissions standards have boosted palladium and rhodium consumption in autocatalysts for gasoline vehicles. By contrast, the backlash against diesel vehicles, where most platinum is used, has seen the metal languish.
Consequently, some of the world’s biggest platinum miners, including Sibanye Gold Ltd and Impala Platinum Holdings Ltd, are loathe to boost production, even as palladium’s eight-year supply deficit could widen next year.
“They can’t increase production because the main metal is platinum and they don’t want to make the price come down,” said Rene Hochreiter, an analyst at Noah Capital Markets Ltd in Johannesburg.
Platinum has rallied 15 percent this year from a decade low, but demand is forecast to drop next year, pushing the market back into a surplus. Palladium has jumped 41 percent this year, while rhodium has surged 144 percent.
“Expanding production to try and benefit from higher rhodium and palladium prices can be quite risky,” said James Wellsted, a Johannesburg-based spokesman for Sibanye. “Most companies seem reluctant to raise production in South Africa due to the possible impact it will have on the platinum price.”
The rally in palladium and rhodium is extending the life of older shafts along Rustenburg’s platinum belt, but producers are not rushing to invest in new mines, Implats spokesman Johan Theron said.
Boosting production would make the platinum market “even more supplied,” he said.
Given the geological and market restraints, Implats expects output from South Africa’s mines to start declining over the next five years.
New projects in South Africa would take years to develop, while those in neighboring Zimbabwe might be stymied by political and economic uncertainty, he said.
Anglo American Platinum Ltd, the most profitable of South Africa’s producers, is expected to make a final decision on whether to expand its Mogalakwena mine at the end of next eyar, Anglo spokeswoman Jana Marais said.
Unusually, the company’s flagship mine produces more palladium than platinum, but Amplats must weigh the prospects for power supply from South Africa’s troubled state-owned utility before moving forward, she said.
MMC Norilsk Nickel PJSC is one company planning to boost supplies. The world’s top palladium producer said its platinum-group metals output could almost double by 2030.
Still, there is not enough metal in the near term to close the current supply gap, Sibanye chief executive officer Neal Froneman said last month.
‧Spot gold edged up 0.2 percent to US$1,467.26 per ounce, but lost 0.08 percent for the week.
‧Iron ore climbed 1.8 percent to US$86.57 per tonne, gaining 3.99 percent for the week.
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