THE fall in platinum production from South Africa, the world’s largest source of the metal, combined with steady demand means the market will be in balance this year and slide into a deficit next year with the outlook for prices good, platinum players say.

Labour disputes coupled with weak prices, high costs and negative sentiment around the metal, which is used in autocatalysts and jewellery, have resulted in heavy cutbacks in supply from South Africa this year.

Platinum miners have reported disrupted supply or shaft closures or delayed projects because of industrial action or the poor economics of operating mines. Combined, more than 250,000oz of platinum production have been lost so far this year.

Platinum hit a 2012 high in February of $1,729/oz before falling back to a low of $1,384 in June. With more than two weeks of labour strife at Lonmin in which 44 people have been killed the platinum price has pushed to levels last seen in May, touching $1,540.

"Ultimately, for someone to take out 100,000oz or 200,000oz of production, they’ve got to cut back on labour. Imagine making that decision now with all of this going on around the sector," Implats marketing executive Derek Engelbrecht said last week. The negative sentiment around the demand side may be overdone, with strong growth in vehicle production, he said.

About 45% of platinum used to make autocatalysts is consumed in Europe, where the poor economic environment has reduced car sales.

"Global auto sales are tracking at an all-time high, notwithstanding what we’re seeing in Europe.

"It is interesting to note that a 7% reduction in EU (European Union) sales represents about 100,000 platinum ounces and analysts are using this number to forecast Armageddon in this industry. It is quite simply insane," Mr Engelbrecht said. Implats, whose CEO is Terence Goodlace, expects the platinum market to be in balance this year and slip into a deficit next year.

"We see a deficit because supply is not going to catch up next year. Our forecast is for steady demand for a year and then it will slowly start picking up from the middle of the year, so we’re not expecting it to come out of the racing blocks right away," Mr Engelbrecht said.

Demand was expected to be steady for the rest of this year, said Northam Platinum’s marketing manager, Jerry White.

"However, what appears now to be almost certain is that the metal surpluses currently prevailing in platinum and palladium will be further eroded as the year progresses as output from primary producers is throttled back or simply lost to the market by way of unscheduled stoppages. This combined with our outlook for steady metal demand should lend support to prices as the year progresses," Mr White said.

One of the fears in the platinum sector is that the troubles afflicting producers results in prices spiralling higher. "What I hope does not happen is that there’s another massive spike in prices. That’s not good for the industry," Mr Engelbrecht said.

"People are asking if it can go back to $2,000. Of course it can. If there’s a major blow up in the industrial relations front in the next couple of days, then yes, $2,000 is possible, but I just hope like hell it doesn’t happen," he said.

Source: http://www.bdlive.co.za/business/mining/2012/08/28/platinum-market-likely-to-slide-into-deficit-next-year