I have to say that I disagree here on a number of points some of them stemming from the supply side which has gutted the industry in South Africa, the largest producer of platinum in the world with some 80% of yearly sales.
The drive by policymakers towards cleaner energy pushed car manufacturers to rethink technology and old ideas surrounding diesel being a dirty fuel which led them to catalytic convertors. This in effect created huge demand in an industry that never possessed great demand for the precious metal compared to other ferrous metals such as iron ore and copper.
South Africa as the largest gold miner at the time hopped on the opportunity to add another scarce commodity in demand to their list of produced minerals as the abundance of the metal wasn't in short supply.
Fast forward to the present and the platinum industry has taken over as the biggest player in the mining sector and employing thousands of people in the process which is why it is so strategic to the South African government because it absorbs a large number of unskilled workers that it has consistently promised jobs too.
However as the pressure starting building in 2012 with a new labour union to front workers demand for a living wage, things began to fall apart for platinum producers who had no support from government who watched idly by as negotiations between the two parties got out of control eventually leading to the tragic death of 34 miners in Marikana who were gunned down by police.
Platinum producers pleaded with all parties to come to the table and be reasonable with demands as the industry was beginning to feel the effects of a drop in demand from China that was pushing the producers towards restructuring to weather the storm.
In the commodities rubble, Citigroup likes look of platinum https://t.co/iNEXij8jBB
— Bloomberg Africa (@BBGAfrica) November 24, 2015
Again pressure by government on producers to not go through with these restructures has forced the top three producers namely, Anglo Platinum , Impala Platinum and Lonmin Plc to continue producing while demand drops off significantly. The problem only gets worse the more platinum gets brought to the surface. If we were to see any kind of rebound in the platinum price we need to see a drop off in production something that doesn't seem to be likely in the hands of producers. My thinking is we need to see one of the big three going bust to interrupt production and draw down the abnormally high inventory levels kept by these producers.
Unfortunately the attention seems to be drawn on Lonmin which is looking more frail as the weeks and months go by. The feeling on the street is they won't survive this and the thirty odd thousand workforce may be faced with life without employment especially when you take in consideration the state of the entire industry as well as the two other players who won't be able to absorb these excess labour with problems of their own.
If the company were to go bust I see the result being a positive for the platinum industry although we should not take away the economic impacts such an event will cause on all stakeholders involved.
These problems only detract from further issues laying dormant (for now) in the background. With the progress in technology, it's only a matter of time before the uses of platinum become obsolete, not immediately but over the long term the risks will present themselves. There has been some initiatives on the part of producers in the use of platinum to generate electricity but the capital allocated to the
research of this technology barely touching the needle with priorities set on survival.
On the whole the industry is in distress and I don't see the situation changing anytime soon so my belief is we need to see some material evidence that platinum production will be curbed or else the industry is doomed.
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