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Palladium producers to benefit from hike in prices

Palladium producers to benefit from hike in prices

February 27 2011 at 12:51pm

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The increasing demand for palladium from the automotive sector in China benefits South Africa to a certain extent as export revenue from the metal contributes to the country’s gross domestic product, but South Africa is not taking full advantage of the price boom.

Analysts have speculated that the price of palladium could advance to levels last seen a decade ago due to the demand from the Chinese motor industry. Palladium is mined with platinum and is mainly used for catalytic converters in diesel-powered vehicles. Prices climbed 98 percent in the past year to $833 (R5 907) an ounce.

Zingaphi Jakuja, a spokeswoman for the Department of Mineral Resources, insists that South Africa is not taking full advantage of the climbing price of palladium.

She said South Africa’s platinum group metals mining industry, in general, was export oriented and therefore the country was likely to reap any benefits associated with an increase in price.

“However, indications are that the country is not taking full advantage of the current palladium price boom, given the fact that a lower proportion of all the palladium produced in the country was exported in 2010 when compared to the year before.”

According to the department, in 2009 about 87 percent of all the palladium produced in South Africa was exported, with this figure dropping to 77.7 percent in 2010.

A total of 75.1 tons of palladium was produced in 2009 and 89.9 tons in 2010. Of the 20 tons of rhodium produced in 2009, 95 percent was exported, while 93 percent of the 22 tons produced in 2010 were exported.

Palladium producers such as Impala Platinum, which produces about 1.2 million ounces annually, said while the climbing prices contributed to the bottom line, it was not ideal.

Spokesman Derek Engelbrecht said: “It is very difficult to take advantage of the situation, other than simply enjoy higher revenue for the metal we have produced.

“The ratio of palladium in the ground does not change so we cannot simply produce more when the prices are higher and vice versa.

“Some ore bodies in South Africa have differing geology but mining companies do not switch from one to another – we are trying to mine as much as we can from the resources we have.”

He said from the company’s total production, 10 percent was returned in the form of tolled metal and therefore could not be sold. However, between 60 percent and 65 percent of the remainder was sold locally to the catalytic converter industry.

Jakuja said the continuing increase in the price of palladium would lead to growth in the gross value added by mining, particularly with the recent strengthening of the dollar against the rand, which has a positive impact on earnings.

Peter Duncan, the general manager for market research at Johnson Matthey, insisted there was a structural deficit on palladium and furthermore, prices were good for South Africa, “provided prices do not go up too high”.

Duncan explained that palladium stocks were running out, while demand was growing. “People are investing, because they see that the market is bullish,” he said. - Dineo Matomela