GMP Securities: PGM market fundamentals are improving right now
According to GMP Securities:
PGE MARKET—SUPPLY-DEMAND FUNDAMENTALS IMPROVING
Supply constraints in South Africa
South Africa currently produces 75% of the world’s platinum and 37% of palladium. Labour unrest over the past 12 months has included a strike at Lonmin’s Marikana Mine, where 34 protesters were killed. South Africa’s PGE sector has seen continued pressures for higher wages as well as power and water. A number of producers have announced plans to review marginally profitable or loss-making operations. In early 2013, Anglo Platinum published a business review, proposing to shut down 4 shafts, divest certain operations and undertake a workforce reconfiguration that may result in up to 14,000 layoffs.
Strong demand outlook
The primary use of PGEs is for the production of autocatalysts in the automotive industry. We expect this sector to provide support for PGE demand, given expected growth in vehicle production and tightening emissions regulations. Tighter emissions regulations call for a higher platinum and palladium content in cars; these are expected to be implemented in Europe and China in 2014 and 2015, respectively. In our opinion, catalytic converter demand will remain a key PGE supporter, with 30% growth in international light vehicle production expected over the next seven years. No viable substitutes for platinum or palladium have been identified.
Amid the declining PGE supply and strengthening demand, we see a shortage of large, quality PGE development projects in established, low-risk jurisdictions. We note that most production is from areas with high political risk (South Africa and Russia).