WPIC: The primary platinum supply could stagnate beyond 2024

With mining risks biased to the downside, platinum supply from mining represents a significant decrease, as inflationary and recessionary risks may weigh on investment decisions for large capital projects. For new projects, rising interest rates also compress expected returns, unless there is a corresponding increase in commodity prices. Therefore, meaningful upward supply revisions are unlikely between 2024 to 2027, and the primary supply plateaus from 2024. However, recent trends suggest downside risks are more prevalent in platinum supply, says a World Platinum Investment Council report.
The report says that significant headwinds impeded supply plans for 2022. In South Africa, an unplanned extension to smelter maintenance weighed on domestic output, while ESKOM, the South African state energy supplier, has been facing problems with smelters. Therefore, South Africa’s platinum production in 2022 was 511 koz below production expectations at the start of the year.
Production from Russia was pretty consistent in 2022 despite the onset of the Ukraine military conflict. However, Nornickel has warned that sanctions are impacting its ability to procure mining equipment and spares, which may be a problem in terms of sustainable production in the medium to longer term. Nornickel is also undertaking a smelter rebuild in 2023, which it would normally have contracted out to the OEM but is now undertaking itself, which presents a risk to completing and recommissioning without encountering any serious challenges. The midpoint of Nornickel’s platinum production guidance for 2023 is 624 koz, a 4.1% implied reduction in output relative to 2022. Forward-looking production guidance does not factor in a deterioration of load shedding of the impact of sanctions on the mine operating environment in Russia.
Management commentary indicates production downside risks from worsening load-shedding could curtail between 5% to 15% of South Africa’s refined platinum output in 2023 alone. Using a midpoint 10%
reduction to South African refined supply equates to a 5.6% average reduction in total platinum supply between 2024 to 2027. This could continue the recent downward trend in company guidance over the past 18 months. Aggregating the mid-point (10%) downside risks to production from South Africa and Russia would result in the projected deficits being about 500 koz p.a greater than presented.
Notwithstanding downside risks, WPIC sticks to the mid-point of published company guidance, particularly with updates provided alongside recent financial reporting. Nornickel has pulled medium-and longer-term guidance, and WPIC has rolled 2023 production guidance forward to 2024 and beyond.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished