The Investor SA

23 March, 2015

Martin Barwise

 

-Platinum's prices continue to fall on the JSE-index-

 

The Platinum sector has been a pretty bad place to be for investors on the JSE in recent times. Platinum's downfall was driven by the stronger U.S dollar, and by auto catalysts using recycled metal as a replacement for platinum. 

 

Over the last three years, platinum have extended their exceeded losses through suffering many challenges that were thrown at them. Producers of  Platinum  Group  Metals (PGM)  were  hoping  for  a  price  recovery  in  2015, but this was not to be the case as there is still no sign of prices turning into platinum's favour. After suffering the five month strike in 2012/13, and experiencing trouble with automotive companies, the  platinum sector just seem to get hit by unfortune. Amongst the three  big  platinum  producers, Lonmin  has  shed  close  to 35% of its value over  90 days, Impala is down nearly 25%, and Anglo American Platinum is just shy of 10% lower.

 

Platinum's  primary  use is an auto catalyst in diesel engines. The fact that they emit

less  carbon  dioxides  has  gained  them  huge  favours  in  building  diesel engines,

however studies have shown that Platinum is not as environmentally - friendly as we

have thought. Although platinum  emits  less  carbon  dioxides, they  release  higher

levels of other pollutants  such as  nitrogen  oxides, which  could  cause  respiratory

problems  such  as  asthma. These  problems have already led to Paris announcing

plans to ban diesel cars from the city within the next five years.

 

Car  manufacturers  are  starting  to  turn  more and more to recycled metals, which

reduces  their  reliance  on  mined  platinum. Together  with  wage inflations and an

unreliable energy supply, life for  the  platinum  sector  just  continues  to  go  south.

Mines that are already mining platinum in great  depths  underground  simply  can't

get it out for less than they can sell it. This  just  continues  to  host problems for the

mining   sector.

 

However,  this   is   exactly  the  kind   of  environment  were  valued  investors  love

to   take   a  look  around. One  value manager  that  seem  to  be  buying  in  this  market  is RECM. Although they have taken lots of criticism as prices continue to fall, their fund managers are sticking to their guns as they see a long term investment opportunity. Since the bulk of the world's platinum is mined in South- Africa, they believe that the price of the  metal  ultimately  has  to  turn  their  way, they  just  don't  know  when. They believe that in the long term, their stocks will re-rate, and they will bare the fruit.