Despite prices approaching their lowest level in 10 years, the largest Platinum miners are not significantly reducing their production.
South Africa accounts for about 70% of the world's platinum supply. Its largest mining companies are reducing production very little, while platinum prices are at their lowest level in a decade.
Half of South Africa's production is not profitable, but few farms such as Anglo American Platinum Ltd, one of the leading platinum mining companies, reduce their production because a lower rand reduces production costs. This benefits margins and helps the struggling industry maintain cash flow.
Otherwise, prices could remain depressed at a time when hedge funds are at their lowest level on record. Platinum overproduction will total 316,000 ounces this year. However, any excess production in South Africa would be more damaging in a market whose demand has fallen in recent years. Platinum, manufactured mainly for automotive catalysts, fell by 13% in 2018 to about $808 per ounce as diesel car sales declined.
The rand has fallen by about 55% in the last seven years, allowing some south african miners to partially protect themselves from the rout, their expenses being paid in local currency but whose metal price is fixed in dollars. Nevertheless, the average price of the domestic platinum basket is now about $980 per ounce, $20 more than the marginal production costs, according to Mr Menke, commodity strategist at Bank Julius Baer & Co.
Amplats, Anglo American Plc's platinum unit, after abandoning some outdated and expensive assets, has revised its production forecasts upwards and plans to add 250,000 ounces of platinum per year to its main Mogalakwena mine by 2021.
South African production has changed little since 2015 and will only fall by 1.1% in 2018. The industry is also expected to reduce production by 600,000 ounces over the next 18 months to reduce supply. The sector continues to face unprecedented challenges, and although Impala's production may increase slightly, it plans to reduce its production again over the next two years.
Mining companies are working on plans to cut dozens of jobs until 2021 to reduce costs and counter falling prices.
Posted by: BUNKER GOLD&SILVER