Grigory Zabrodsky, Yevgeny Nekrasov

P

latinoids do not get oxidized. Besides, platinum, palladium and rhodium make some processes hundreds and thousands of times faster acting as long-lasting catalysts and helping energy accumulation. As a rule, precisely these properties of platinoids explain their utilization in various industries. They are used as catalytic materials in manufacturing automobiles and refining oil, in the chemical industry and as additives and special coatings in making electronics, electrical equipment, accumulators and space-research hardware.
A major portion of platinoids is consumed by making exhaust catalytic neutralizers for automobile motors. In the 1990s European countries, the U.S., Canada, Japan and Australia adopted statutes that sharply tightened permissible standards of noxious gases’ presence in automobile exhausts. In 2002 carmakers used 64.4 tons of platinum or 35% of its world production volume, 84.6 tons of palladium (52%) and 15.9 tons of rhodium (83%). In 2003 volumes of their consumption went up: it was 78.7 tons (41%) for platinum, 101.4 tons (52%) for palladium and 17.2 tons (84%) for rhodium. It is worth noting that platinoids’ reserves accumulated before are widely used as well.
Market supplies of platinum are controlled by the Republic of South Africa, its chief producer. South African deposits provide between 72% and 76% of platinum a year. As for Russian ore deposits, there prevails palladium. Russia accounts for 50% of this metal’s world supplies.
The demand for and industrial utilization of platinum and palladium as well as prices for them differ sharply. From the beginning of 2000 till the middle of 2001 carmakers experienced an acute shortage of palladium caused by its reduced supplies from Russia. The price for this metal shot up and by January 2001 it peaked at $33.52 a gram (while the platinum price was $19.98 a gram). By that year’s end the situation began to change radically. Manufacturers of automobiles oriented on the palladium-use technologies consolidated their positions starting to utilize their stored metal and gradually to replace it with platinum that was cheaper at that time. Along with platinoids other metals, particularly nickel, were put to use. Also, some companies began to apply cesium for catching exhausts.
From that moment on trends in the platinum and palladium markets have turned in the opposite direction.
Even taking into account extra market supplies of platinum between 2002 and 2003, the demand for this metal remains high exceeding the supply. To a large extent this demand is prompted by China: as the country’s citizens are getting richer, they actively use platinum-made jewelry to hoard accumulated capital. If in 1998 to 2000 China’s jewel business consumed from 10 to 30 tons of platinum, in 2002 the volume of platinum used for manufacturing jewelry in the country reached 46 tons. As it could be expected, the shortage of platinum resulted in the growth of prices from $15.2 a gram in January 2002 to $20.25 a gram in January 2003. And it did not stop at that: by January 2004 the price for platinum amounted to $27.35 a gram. According to existing estimates, it is predicted to remain at the level between $27 a gram and $28 a gram in the future as well.
Things are different in the palladium market. After the autumn of 2001, when the palladium shortage was overcome, prices for this metal started to quickly fall down. Manufacturers of automobiles lost their interest in purchasing it. The company Norilsk Nickel, the palladium chief producer, suspended its supplies and the price went down to $13.81 a gram by the year’s end. In 2002 Russia’s supplies of palladium amounted to 60 tons (by other sources, the figure was about 50 tons). The supply exceeded the demand by 20 tons at the least. As a result, throughout the year prices stayed at the extremely low level averaging $10.82 a gram. In 2003 Norilsk Nickel continued to keep back palladium supplies. However, it was generously made up for by the increase of supplies from the Republic of South Africa (over 70 tons), the U.S. and Canada (about 30 tons altogether). Thus, the world market received almost 200 tons of palladium or over 39 tons more than in 2002.
At the same time, major changes were gradually taking place in the disposition of forces among main players. Norilsk Nickel acquired a majority stake in the American company Stillwater Mining Ltd. that was developing two palladium deposits in the U.S. with the aggregate production volume of about 20 tons a year. Thereby, Russians took an almost total control over the palladium market. On the other hand, carmakers, which partly replaced palladium with platinum, and some manufacturers of electronic equipment were facing the choice: either to keep on buying much more expansive platinum from the South African Republic (in 2003 its average price amounted to $26.17 a gram) or to get back to using palladium, supplies of which were controlled by Russia. Most consumers of platinoids decided in favor of the first option, while some companies, however, preferred the second one. What is more, it was reported that there were new technological developments that made it possible to use palladium in diesel-powered motors, where only platinum was used before. Although this failed to balance the demand and supply, it, nevertheless, helped keep palladium prices in the first quarter of 2004 at the level between $8 and $9 a gram instead of catastrophically low prices of $1.5 to $2 a gram that were predicted.
Taking into account high prices for platinum, Russia will most likely sell the country’s stored reserves through its foreign trade organizations: it is expected that in 2004 the volume of platinum sales will exceed its extraction volume by between 30% and 40%. Palladium, on the contrary, will be partly stored: by estimates, the annual volume of its sales will reach 60 to 70 tons.
According to forecasts, in the nearest future the demand for platinum will not go beyond 205 tons and the demand for palladium will not be higher than 180 tons. Taking all things together, in 2004 market supplies of platinum and its consumption will be balanced. As far as palladium is concerned, the situation is not so favorable for producers: its significant overproduction by approximately 30 to 35 tons should be expected. That is why it is necessary to store considerable amounts of it so as to support prices.
After 2005 the platinum production volume will obviously achieve a significant growth. The Republic of South Africa will get new mines that are to be constructed in the eastern sector of the Bushveld tract: it will be quite possible to get 15 to 17 tons of platinoids a year at these enterprises right after their start-up. Besides, it is expected that the production in the western sector of the tract will be expanded: these mines will add 5 to 7 tons more. As a result, the balance between production and demand in 2005 to 2006 will be disturbed. As other new mines are commissioned, the surplus of platinum will become even more obvious and prices will start going down.
If the importance of the prime cost of gold production for the industry as a whole and for individual producers can be determined reliably enough in the process of metal extraction, the information on companies’ expenses to produce platinoids is scanty. That is why the ‘threshold of prime cost’, beyond which platinoids’ extraction becomes unprofitable, can be determined theoretically only.
Annual accounts by four leading producers of platinoids in the South African Republic (Anglo American Platinum Corp. Ltd., Impala Platinum Holdings Ltd., Lonmin Platinum Ltd. and Aquarius Platinum Ltd.) make it possible to conclude that in 2002 the total operational costs varied within a rather wide range: from $5.5 to $9.2 a gram. All these companies were developing the same layers and in about the same working environment in the western sector of the Bushveld tract. By our estimates, each ton of extracted platinoids contained 0.58 ton of platinum, 0.27 ton of palladium, 0.07 ton of rhodium and 0.08 ton of other platinoids. Their aggregate cost in the world market was estimated at $15.2 million. Taking into account the fact that the first three of the above-mentioned companies received approximately $4 million in net profit per each ton of platinoids, the total prime cost of extraction averaged $11 a gram. Thus, the net profit of the first three companies reached approximately 26% of the extracted ore cost. As for the fourth company, Aquarius Platinum Ltd., which got 8.4 tons of platinoids and $10.5 million in net profit, the share of the latter amounted to 8.2% only.
One more interesting conclusion can be made as well. The first three companies of the South African Republic are developing deposits on a large scale: in 2002 they extracted 122.8 tons, 98.3 tons and 45.6 tons of MPG respectively. Precisely these companies were working on deposits in the most profitable way and that resulted in maximum benefits. Companies, which managed to reach the level of MPG production over 20 to 40 tons, received about $4 million a ton in profit. Those companies, which were extracting in the same working environment less than 10 to 20 tons of MPG a year, gained only $1.26 to $1.6 million a ton of platinoids. One may assume that the annual production threshold of 20 and more tons determines the optimal amount of extracted and processed raw material along with the most rational quantity of required mining and mineral processing equipment as well as power, transportation and other means of ores’ processing and the optimal composition of personnel with respect to workers and engineers. It is quite probable that this threshold of extracting platinoids should be recommended when developing new deposits or expanding mines already in operation.

Conclusion
1. Market conditions existing since the start of 2004 are favorable for platinum producers. It has proved to be in demand by industries and the jewelry business. Its price in the world market has reached record high levels. At the same time, this demand will be gradually getting lower due to the replacement of platinum with cheaper palladium, other metals and materials and because of the general reduction in spheres of its industrial utilization. Another negative factor is the increase of platinum production rates because of intensive development of comparatively rich deposits in the South African Republic and Zimbabwe. There is no doubt that prime cost of platinum extraction will also grow up.
There are expectations that between 2004 and 2005 there will be either a small shortage of platinum or a balance between demand and supply. Such a situation will support the price for this platinoid along with the weakening U.S. dollar, mass hoarding purchases of platinum jewelry in China, high oil prices and somewhat uncertain political situation in the world. Record high prices at the average annual level of $27 to $27.5 a gram will likely remain till the middle of 2005 at most. On the whole, the year 2005 will be marked by the gradual reduction of prices. From between 2005 and 2006 the rate of prices’ downfall will increase as the platinum production volume is growing up.
2. The demand for palladium is moderate in automotive, electronic and electrical engineering industries as well as in dentistry. The demand for it is insignificant in the jewelry-making. On the one hand, the use of substituting materials and the finest coatings (that sharply reduces its utilized palladium mass) has its negative impact in this respect. On the other hand, this is the result of a negative effect of a larger palladium world production volume (by 8% to 15 % bigger as compared with a platinum volume). The production of palladium will most likely grow up by slower rates than the production of platinum. This is due to a comparatively high ‘threshold of prime cost’ of extracting palladium.
For the nearest future an average annual price for palladium is predicted at the level of $7 to $8 a gram. It is most likely that even partial return of some industries to the palladium-use technologies will not lead to any considerable rise in prices for the metal. In this connection it is worth examining thoroughly all options of developing deposits containing ores, in which this metal prevails.
3. Although there is no comparative analysis of expenses on production of platinoids by different producing companies, a ‘threshold of prime cost’ estimated at $10 to $11 a gram can serve as a guideline for a preliminary commercial assessment of new deposits that contain platinoids and are to be developed.

Table 1
Structure of platinoids’ world consumption (Russia not included) in 2003, tons
2001 2002 2003
platinum palladium platinum palladium platinum palladium
industries
Hoarding of ingots 2.8 0 2.49 0 0.31 0
Car making 61.89 149.59 64.38 84.59 78.68 101.39
Jewelry business 80.55 7.15 87.7 8.09 76.2 7.62
Electronic & electrical engineering industries 11.97 20.84 11.82 23.33 12.28 30.63
Medicine (dentistry) 0 22.55 0 23.95 0 25.35
Chemical & electrochemical industries 9.02 7.77 10.26 7.93 10.11 7.78
Glass industry 9.02 0 7.93 0 7.62 0
Oil refining 4.04 0 15.4 2.95 15.71 2.95
Other industries 14.46 2.02 15.4 2.95 15.71 2.95
Total 193.75 209.92 204.02 150.84 204.95 175.72

Sources: Platinum 2002, Platinum 2003, Platinum 2003 Interim Review/Johnson Matthey. London, 2002, 2003.


Table 2
Supply of platinoids to world economy, tons
2001 2002 2003
platinum palladium platinum palladium platinum palladium
South African Republic 127.51 62.51 138.39 67.18 144.62 70.91
Russia 40.43 134.97 30.48 60.02 25* 91.74
US & Canada 11.2 26.44 12.13 30.79 8.86 26.44
Sales from US strategic reserves – – – 9 – –
Other countries 3.11 3.73 4.67 5.29 6.23* 7.46
World, secondary metals 16.48 8.71 17.73 11.51 18.98* 12.75
Total 198.73 236.36 203.4 183.79 203.69 209.3
* Authors’ assessments taken into account

Sources: Platinum 2002, Platinum 2003, Platinum 2003 Interim review/ Johnson Matthey. London, 2002, 2003; BIKI, 2003, No. 63.



Reference:
Since 1994 the world production of platinoids has considerably grown up usually keeping pace with needs of the world economy and even outpacing them from time to time. As a whole, in 10 years the world production of platinoids grew up by almost 160 tons or by 59%. Since 1999 the production growth rates rose to 5.7% a year. In 1994 the MPG world extraction volume was estimated at 267 tons, including 129.7 tons of platinum and 108 tons of palladium. In 1998 the extraction volume increased to 330 tons (157.5 tons of platinum and almost 148 tons of palladium). In 2004 the world production of MPG is predicted to amount to 425 tons, including 186 to 190 tons of platinum and about 195 tons of palladium.