Platinum buying expands as mining strikes escalate

Zondereinde Mine

Wage disputes are adding to mining companies’ struggle to maintain output. They are now digging as deep as 1.3 miles to find ore, and temperatures at the rock face of Northam Platinum Ltd.’s Zondereinde mine in South Africa can reach as high as 162 degrees Fahrenheit (72 degrees Celsius). Lonmin got 4.4 grams of platinum-group metals from every ton of ore last year, 5.4 percent less than in 2010.

Global extraction costs are now about $1,430 an ounce, according to Thorsten Proettel, an analyst at Landesbank Baden Wuerttemberg in Stuttgart, Germany. The average annual price has exceeded that only three times in the past quarter century.

While analysts expect prices to keep rising, they would have to advance another 46 percent to match the record $2,301.50 reached in March 2008. Production fell 220,000 ounces short of demand that year, Barclays estimates. Lonmin made $455 million in 2008 and will report profit of $13.2 million in 2012, based on the mean of 10 analyst estimates compiled by Bloomberg.

Catalytic Converters

Demand may fall short of analysts’ expectations because 38 percent is tied to the metal’s use in catalytic converters for vehicles. Platinum is used with palladium and rhodium in the canisters with honeycomb-like surfaces that convert emissions into less harmful substances.

The economy in China, the biggest car market, has slowed for six quarters, the 17-nation euro area is contracting, and consumer confidence in the U.S. fell the most in 10 months in August. Europe accounted for 27 percent of consumption last year and China 25 percent, according to Johnson Matthey Plc, the maker of one in three autocatalysts.

“There are potential claims on the supply side, but it’s very much the demand that’s going to drive prices lower in the coming months,” said Ross Strachan, a commodities economist at Capital Economics Ltd. in London. “The largest source of demand for platinum is in Europe, and the one overriding point is the poor state of the European economy.”

Rising prices will also spur more recycling. Supply from spent autocatalysts jumped 21 percent in 2008 as platinum surged, according to London-based Johnson Matthey. Total scrapping rose to a record 2.05 million ounces in 2011 as prices averaged an all-time high of $1,721.

Car Sales

Global sales of cars and light commercial vehicles will rise 5.5 percent to a record 81.1 million units this year, according to LMC Automotive Ltd., a research company in Oxford, England. Carmakers will use 3.22 million ounces this year, the most since 2008, and 3.81 million in 2013, Morgan Stanley estimates.

Hedge funds and other speculators almost tripled wagers on rising prices in the two weeks through Aug. 28, U.S. Commodity Futures Trading Commission data show. They now hold a net 20,072 U.S. futures and options, the most since March. ETP holdings reached an 11-month high of 45.3 metric tons on Sept. 4, valued at $2.3 billion and 2.3 percent below the record set in September 2011, data compiled by Bloomberg show.

Anglo American Platinum Ltd., the biggest producer, will report profit of 3.03 billion rand ($363 million) next year, from 1.38 billion rand in 2012, based on the mean of eight analyst estimates. The Johannesburg-based company made 3.59 billion rand in 2011. Its shares dropped 23 percent to about 408 rand this year.

“The mines are unprofitable,” said David Christensen, who oversees $600 million of assets as chief executive officer of ASA Ltd., a San Mateo, California-based company investing in precious-metal companies. “Increasing labor activity is going to negatively affect production.”

Bloomberg News

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