Amplats in the deep end

Less than a year after tearing up a $57-million annual supply contract with its main buyer, Anglo American Platinum is struggling to implement a new strategy of selling directly to end-users against a backdrop of weak prices, sources said.

Amplats, the world's top platinum producer, ended a long-standing deal late last year through which it sold most of its output at a discount to refiner Johnson Matthey in exchange for marketing.

The idea was to make more money by cutting out the middleman, going direct to traders and carmakers and seizing profit opportunities by financing or lending metal and arbitraging different locations and grades.

So Amplats expanded its marketing and sales teams in London and Singapore.

But market sources say the plan to lure business away from brokers and banks, which could shake up a market worth $5.4-billion a year, is proving hard to put into practice.

"The expectation on what they can get is too high, especially at a time when the market is really weak," a banking source said.

Prices of platinum have fallen 7.3% this year and are at a level that producers said barely covers the cost of mining. The metal is trading at its lowest level in five years.

Yesterday, Amplats' share price dipped to its lowest level this year - even lower than at the height of the five-month-long strike. Peers Impala Platinum and Lonmin also touched 52-week lows yesterday.

Amplats says it has more than offset the reduction in the amount of metal it sells to Johnson Matthey through the acquisition of new customers, including some in the automotive industry, but declined to provide details.

"We have been selling platinum to our customers for many years, independent of the previous relationship with Johnson Matthey," a spokesman for the company said.

Industry sources said the company lacks the logistical infrastructure and has little experience in the industrial supply chain. Risk management could also prove problematic, they said.

"Anglo Platinum is looking to do in months what Johnson Matthey took decades to achieve," said Ross Norman, CEO of bullion broker Sharps Pixley.