The 21-day lockdown that commenced today across the mining sector in South Africa will particularly impact the global supply of platinum and other PGMs. However, with declining demand from the autocatalyst and jewellery sectors, platinum prices remain under pressure.
From midnight on 26 March, all but a few of South Africa’s 239 operating mines were put on care and maintenance for three weeks in a bid to stem the spread of Covid-19 across the country. Only a small number of thermal coal mines remain in operation in order to feed the country’s coal-fired power generation.
To date, South Africa has not been too badly affected by the pandemic. As of 26 March there were just over 700 cases, including only one at a mine site, according to the Minerals Council of South Africa, and also no deaths to date. However, the government recognises the true threat the virus poses and has made the most significant step to affect the mining sector globally by choosing to implement a 21-day lockdown.
South Africa is the dominant producer of platinum globally, accounting for over 70% of the total production. By freezing production for 21 days, it effectively reduces global supply for the year by 4%, around 250koz. Production in 2020 was already forecast to decline due to lower output from Anglo American Platinum. The company reported an explosion at its Anglo Converter Plant at the Waterval smelter in Rustenberg in February, which will take until Q2 2021 to be repaired. As a result, guidance for 2020 was reduced from 2-2.2moz to 1.5-1.7moz for platinum.
Previously in 2019, production had fallen by 1%. This was despite increased production from leading producers such as Anglo American Platinum and Sibanye-Stillwater, which acquired Lonmin during the year, with their increases being offset by declines elsewhere, such as at Implats. Demand for platinum is highest in the autocatalyst sector where it is used in diesel vehicles, however, following the dieselgate scandal in late 2015, demand for platinum in this segment has been falling steadily, down by 16% overall between 2016 and 2019. An opposite trend has been seen for palladium, which has benefited from stricter emission laws in Europe and China, which have prompted car manufactures to produce more petrol and fewer diesel vehicles.
The Covid-19 outbreak is having a significant impact on the automotive sector, with widespread closure of plants and, as of 24 March, GlobalData was predicting a decline in sales of light vehicles of over 15% for 2020. Thus any impact on platinum output of the 21-day lockdown would be expected to be more than counteracted by the decline in demand from the automotive sector.
Sales of platinum jewellery are also expected to decline in 2020, continuing the downward trend since 2014.
For the price of platinum, a steep decline from over $1,000/oz on 19 February to $608/oz on 22 March was halted by the announcement of the lockdown, with prices rising to $735/oz on 26 March. However, with a rising surplus expected this year and ongoing temporary shutdowns of auto manufacturing to contain the spread of the coronavirus, the platinum prices remain under pressure.