Platinum group stocks see little gain from rise in metals prices

It was not so long ago that some chrome and platinum-group-metal miners were laying off workers and putting mines on care and maintenance due to low chrome and PGM prices.

But in 2017, although some analysts predict chrome prices will start dropping, platinum sister metals such as palladium and rhodium are expected to keep rallying.

The leader of the PGMs, platinum, has dropped 8.3% since July last year, yet chrome, which last year alone increased about 305%, is now trading at $395 a ton.

Palladium last year rose 21% and this year leads the rally in PGM prices with an 10.4% increase so far. Palladium is trading at $751.33/oz. Rhodium has increased 8.4% this year and is trading at $835/oz. 

Impala Platinum this week announced the sale of its 65% stake in Impala Chrome, prompting questions as to why Implats would not follow in Anglo American's footsteps and hold on to such an asset a little longer to squeeze the benefits of chrome's price rise.

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Implats spokesman Johan Theron said the chrome extraction venture the company was selling was a small part of the business and, if sold to local businesses and communities , would benefit them a lot more than it would Implats.

On the broader business scale, he said, there was still chrome in the metals produced and Implats therefore still benefited from the chrome prices. The chrome extraction venture was 65% owned by Implats, 30% by chrome traders and 5% by local landowners .

"It's open to the market but clearly we've stated that we want to generate value and we want to prioritise the opportunity for local communities and local businesses to potentially partner with us," Theron said.

The company had seen some increases in palladium, rhodium and chrome and these were important byproducts, so any increase in their prices benefited Implats, although platinum remained the top contributor to revenue for the company and the industry, he said.

Hurbey Geldenhuys, a platinum analyst at Vunani Securities, said it was a good move to sell the chrome asset because chrome prices were going to drop soon, and Implats would probably get a better price when prices were rallying.

"It's not core to their business and they have large capital expenditure requirements and, at the current stronger rand and basket price, a cash inflow for them would certainly help a lot," Geldenhuys said.

The chrome price is largely controlled by Chinese demand.

Bauba Platinum, a platinum exploration company based in Limpopo, where it mines chrome, said that due to the low chrome price at the start of last year, it had placed its chrome mine under care and maintenance. However, since the price rally in the second half of 2016, it had reopened the mine and been able to capitalise on the price.

"The long-term fundamentals for chrome are strong, with limited new supply coming on board and stainless steel demand forecast to increase," said Bauba finance director Jonathan Knowlden.

"All this bodes well for Bauba as being both a chrome ore producer and a PGM explorer."

According to Bloomberg, Chinese imports of ferrochrome have dropped about 60% since July last year.

Ferrochrome is produced from chrome ore and iron ore, and is used to make stainless steel. 

"The underlying driver for chrome is the stainless steel market, and the stainless steel market has been strong and there's more growth forecast, in contrast to crude steel," Geldenhuys said. He anticipated that most platinum miners, which extract palladium and rhodium as byproducts, would continue to benefit because the palladium price would continue to rally. Current demand could not be satisfied by supply.

Geldenhuys said that by 2022, there would not be sufficient palladium, whether newly mined or in stockpiles.

"The issue with palladium is that it's mostly produced as a byproduct either of platinum or nickel, so palladium supply has no price elasticity. Even if prices rise significantly, it will not mean that it will stimulate additional palladium production," Geldenhuys said.

Izak van Niekerk, an analyst at Mergence Investment Managers, said while demand for platinum and palladium came from investors, the demand for other PGMs came from industrial development and therefore the rally of industrial PGMs was due to a policy shift in China, which required more industrial metals.

Van Niekerk said the reason PGM miners had not rallied in line with PGM metal prices was that the rand-metal prices were lower than had been expected.

The share prices of the three leading platinum producers - Amplats, Implats and Lonmin - have dropped by 21.3%, 6.4% and 28.6% respectively since July last year, while the main chrome producers, Bauba Platinum, Merafe Resources and Tharisa, gained 47%, 78% and 119% respectively in the same period.

mtonganal@sundaytimes.co.za