MINEWEB vom 25.07.04
Palladium Problems
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Alec Hogg
'25-JUL-04 11:00'
MINEWEB: Welcome to Jessica Cross, chief executive of Virtual Metals. Jessica, colleagues of mine at Mineweb have been talking to you about your research into the palladium price –
the outlook for the palladium price.
And it looks pretty gloomy. Why is that so?
JESSICA CROSS: There are various issues that have been happening. If you look at the primary supply side, a lot of the planned expansions coming out of South Africa, particularly the eastern limb, UG2 ore, and that implies for more palladium per ounce of platinum coming out. On the secondary side of the supply part of the equation is, come 2005, you have European environmental directives which will state that virtually everything with a plug or a battery will have to be recycled. Now that strips out the price sensitivity of recycling, and we don’t know yet how much palladium is going to come out as a result of the printed circuit boards going back to the refiners. On the demand side, the price spike in 2000, to a $1000 an ounce for palladium, really had a devastating effect on the metal usage in electronics, where there has been irrevocable substitution away from palladium into nickel and silver alloys. And that used to a three million ounce market for palladium, a very nice niche there. And that’s now been eroded away to 800,000 ounces a year and looking to go south, despite a vast growth in electronic components.
MINEWEB: Where can it go to then, if you just take the palladium price in rands – which has collapsed over the last few months because of the stronger rand, on the one hand, and I suppose the palladium price in dollars is not doing too great. What do your forecasts suggest?
JESSICA CROSS: We forecast for the primary producers, and obviously
those are project evaluation prices, and they have to be conservative by
nature – and we suggest that they use sub-$200 and you're looking at
probably $175, $180.
The great sort of hope for this lot is that maybe a palladium catalyst in
diesel engines might eventually come about and become a reality. And if
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that were to technically be proven, I think that would help the market a lot
and, in fact, alleviate the tightness that you are seeing in the platinum
market right now.
MINEWEB: Well, that’s the other thing. If you talk to the average South African who knows a little about platinum and palladium – they have the perception that it won’t hurt us in this country, because we mainly produce platinum, whereas palladium mainly comes from other parts of the world. But that’s not strictly true, is it?
JESSICA CROSS: Well, you’ve got to look at all five PGMs together, and they are all sisters in the same ore body, and they come out of the refinery at the same time. And it’s a particularly complex market to analyse because in some cases in the end-users, the metals are supportive of each other, for example in jewellery. And in other instances they directly compete, like in autocatalysts, between platinum and palladium. So it’s a very, very complicated process trying to work out the supply-demand balance, and where the gives and takes are between the two metals. And what is concerning us is this divergence of the supply-demand balances between platinum and palladium. And we think this is a rather unhealthy situation that’s evolving here, and our greatest concern is that it’s in fact not a short-term phenomenon that might have been driven by a resource bubble – that you’ve got a structural problem developing in the longer-term market.
MINEWEB: You mentioned the eastern limb of the
Bushveld,
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in other words the area around Mpumalanga, where there has been so much talk, so many platinum mine prospects that have been suggested.
There’s a big palladium content to the ore that they are going to be mining. What you are suggesting now, if it eventuates, is that going to put those projects at risk?
JESSICA CROSS: Well, I think what’s putting them at risk now, and it’s interesting that you raise it, is that the margins don’t look good. We are just currently updating our cost study on this and what we are doing is we are plugging in a sub-$200 palladium price and a stronger rand, which you cannot underestimate the importance of. The margins of those projects look appalling, and look extremely worrying. And even then we haven’t begun to take into account the finance charges, or anything like royalty or money bill issues. So it is worrying that these projects may not come about, because you have the situation of a lower palladium price and a strong rand. And it’s so ironic that it would be not great, obviously, for the South African industry that metal did not come to market, that it would alleviate the palladium surplus that is evolving. But the major problem is it would greatly exacerbate the platinum shortage that we are seeing coming through. And where these markets are going to come into equilibrium just remains to be seen.
MINEWEB: Jessica, I know you follow the gold price pretty closely as well. We see that dropped below $390 an ounce today. Any thoughts of where it might be heading?
JESSICA CROSS: Well, I firmly believe that it has to consolidate over $400 before we can see another upward move. And the last three months have shown that it has struggled a lot, and you just have to be realistic about it. You know, Virtual Metals watch these markets with a passion, but we are not emotional about it, and we cannot get emotional about the gold prices, as others do. And, to be completely pragmatic, this kind of area, just $390, $400, I think people should be content with for a while.
MINEWEB: Jessica Cross, chief executive of Virtual Metals.
