Image:Naashon Zalk/Bloomberg

Platinum prices are languishing near the lowest in a decade, but the biggest miners are barely cutting production.

Although about half of South African output is estimated to be unprofitable, few companies are reducing production by a meaningful amount, with top supplier Anglo American Platinum even ramping up.

That’s partly because a weaker rand is lowering production costs, which is good news for margins and helps the embattled industry to keep the cash flowing.

It’s also a sign that prices may remain depressed at a time when hedge funds are the most bearish on record. Any additional output in South Africa, which accounts for about 70% of global supply, would further weigh on a market that’s seen demand ebb in recent years. Platinum’s surplus will total 316 000 ounces this year, the most since 2011, Johnson Matthey estimates.

“Production costs have come down because of the weak rand,” said Carsten Menke, a commodity strategist at Bank Julius Baer & Co. in Zurich. “At least it keeps them above water. And also for most CEOs, one never wants to be the first to surrender to weaknesses of prices. They always believe that prices will rise again.”

Money managers aren’t so optimistic – they’re holding the biggest net-short position in data going back to 2006, according to the U.S. government. Platinum, mostly used in autocatalysts, has slid 13 percent this year to about $808 an ounce as diesel car sales slowed, a global trade war raised concerns about industrial-commodity demand and expectations for higher U.S. interest rates curbed the appeal of precious metals.

Weak prices

There’s a consensus for softer prices for at least the next three years, before stricter vehicle emissions laws and economic growth support platinum in the longer term, Impala Platinum Holdings, the No. 2 producer, said Thursday.

South African miners, whose metal is priced in dollars but pay costs in rand, have been partly shielded from the rout as the local currency plunged about 55% in the past seven years. Still, the average so-called basket price of platinum-group metals mined in the country is now about $980 an ounce, just $20 more than marginal production costs, Julius Baer’s Menke said.

Some miners – also faced with rising power and wage costs – are forced to mine at a loss because they need fulfill financial obligations, according to Menke. Fierce opposition from labor and governments also make it difficult to cut output or jobs, he said.

Anglo American platinum unit, known as Amplats, is in a better position than most after exiting some aging, higher-cost assets. The company this year raised its production forecast and plans to add 250,000 ounces of platinum a year at its key Mogalakwena mine by 2021.

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