Business Day: Analysts express mixed views on platinum sector
PLATINUM prices have rebounded to nearly $1,600/oz in the last couple of days, but analysts warned it was still not the right time to invest in the South African platinum sector.
Johnson Matthey’s 2012 interim review, which was released on Tuesday, showed South Africa’s platinum production has plummeted to an 11-year low due to wildcat strikes, which analysts fear could spread to other sectors.
Some analysts believed the platinum price was not a good barometer to gauge the industry’s health, but rather individual platinum stocks. This, they felt, would give investors a better indication of the industry as a whole.
"There is a lot of noise in the platinum industry at the moment. Investors don’t invest from a real demand point of view but from a speculative, short-term perspective," said Standard Bank commodities analyst Marc Ground.
Some of the biggest platinum miners’ share prices on the JSE have had a rough time over the past 12 months. The JSE’s platinum mining index has fallen about 17% from 60 to 50 index points this year. It reached a low of 45 index points in early September.
Anglo American Platinum, which on Wednesday told shareholders its basic and headline earnings per share for the year ended December were likely to fall by more than 20%, had seen its share price drop by 32% this year, and recently came close to its lowest level since 2009.
Over the same period Aquarius Platinum shares have shed 76%.
Lonmin shares lost 54% in value. It recently came close to its lowest level since 2000.
Mr Ground said the recent hike in prices was a knee-jerk reaction to Tuesday’s release of Johnson Matthey’s review, which forecast the platinum market would slip into a deficit.
"The market has known there has been a deficit for some time so it wasn’t that big of a surprise for analysts. The platinum price will lower again," Mr Ground said.
Johnson Matthey sees liquidity in the platinum market as it digests surpluses in previous years. The relatively muted price reaction to strife in South Africa and low lease rates — the price at which banks or fabricators lend platinum to users — indicates there is enough metal to satisfy immediate needs, according to Jonathan Butler, the author of Johnson Matthey’s 2012 interim review.
"The biggest factor in the overall market balance for this year and the price response is the fact that we still see a lot of liquidity in the market, we see lease rates remaining low which suggests there’s a lot of metal out there and the fact that we’ve not seen the forecast of the deficit translate into movements in the price," Mr Butler said.
Vunani Capital markets analyst Kuziva Muganiwa said the recent rise in platinum prices was due to the strikes in the sector.
"Once the strikes have been dealt with, we will see the platinum price weaken again," Mr Muganiwa said.
The strikes have been a conundrum for South African platinum miners.
"The strike(s) have supported platinum prices, but (are) bad for platinum’s shares because it is not good for the companies affected," Mr Ground said.
Analysts believed the European auto market was the barometer to use to gauge the health of the platinum industry.
European car makers are the biggest consumers of platinum.
Since the start of the recession in 2008, exports to some of the major European countries have dwindled.
Mr Ground believed the second half of 2013 should see some positive signs in the South African platinum industry.
"The second half of next year things should be getting better, but there still remained some significant risks, like will the EU get a decent debt crisis deal," Mr Ground said.
However, some analysts believed it was the perfect time to invest in the platinum industry.
With platinum moving into a deficit, the platinum price would continue to rise, according to Paul Whitburn, a senior portfolio manager from RECM and Calibre.
"I would say it was a very good time to move into the platinum industry because the valuation on platinum stocks have not been this low since the late 1990s," Mr Whitburn said.
He said in order for platinum miners to make a profit they needed a high platinum price.
"A deficit is very good for platinum miners as it boosts the platinum price. The recent move into the deficit and the strikes in the platinum sector have sped up the platinum price cycle. This is very good for platinum miners as they would need a platinum price of between $1,800 and $2,000 per ounce, however it depends on the miner where are on the cost curve," Mr Whitburn said.