With the current negative sentiments attached to the local mining sector, RE:CM — in line with its contrarian approach to investing — has started to take a closer look at certain local commodities stocks after shying away from this sector for the most part over the last decade.
Within the sector, RE:CM is paying particular attention to South African platinum stocks and currently holds Lonmin and Anglo American Platinum.
South African platinum industry returns over the past 15 years have been cyclical as the market moves between oversupplied and deficit positions.
Global demand for platinum has increased since the 1960s and 1970s, mainly because of its uses in the automotive, jewellery and industrial sectors. The autocatalyst market has grown substantially over the past 40 years. The majority of the demand for platinum still stems from the automotive sector (40 percent) followed by jewellery (30 percent) and other industrial uses (25 percent).
During the past five years, however, the demand for platinum slowed to a compound annual growth rate of 0.5 percent from a compound annual growth rate of 3.2 percent. The main cause is declining vehicle production in the developed world.
However, emerging markets are slowly consuming more platinum and the demand for autocatalysts in these markets has grown. But emerging market demand is still relatively insignificant compared to the demand from markets such as Europe, the US and Japan.
Demand for jewellery is very price sensitive as consumers substitute gold and platinum. China — and its powerful consumers — is a prominent role player in this segment and is expected to continue growing.
South Africa is a major platinum supplier and the reserve base is controlled by three major local platinum mining companies, with limited new entrants. Anglo Platinum has 50 percent market share and is the largest local producer, followed by Impala with 29 percent and Lonmin with 16 percent.
These three companies are the only fully integrated platinum producers in Southern Africa. They control the entire process from mining, processing and refining, to sales and marketing.
The South African platinum mining industry’s output grew consistently until 2006, when supply was reduced because of safety stoppages, strikes and the steady decline of older shafts. This resulted in local platinum supply declining since 2006.
South Africa produces 80 percent of the world’s platinum (excluding recycling). South Africa’s market share of global platinum production has remained consistent since 1975 at between 70 percent and 80 percent (excluding recycling). The relative market share of the three largest producers has also remained stable over the last decade with over 90 percent share of South African production.
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