Platinum group metals: birth of a global cartel

Commodities , Precious metals Apr 10, 2013 No Comments

PlatinumThe two largest platinum group metals producers, South Africa and Russia who together control about 90% of the world’s supply, have finally decided to join forces to try to curb excess production bringing down platinum and palladium prices.

At the summit of the BRICS, held in Durban at the end of march, the South African Minister of Mineral Resources, Susan Shabangu, met her Russian counterpart Sergei Donskoy. The two ministers, following previous discussions in Moscow in November and Pretoria in February, signed on March 27th a framework agreement for the creation of an OPEC-type trading bloc to coordinate exports of platinum group metals.

The details of the implementation of the agreement are to be determined. “Our goal is to coordinate our actions accordingly to expand the markets. The price depends on the structure of the market, and we will form the structure of the market. We do not intend to influence prices. Everything we create is in compliance with the WTO, ” declared the Russian minister. Donskoy added that working groups were being formed to work out joint actions and there will be a meeting in the summer to discuss mechanisms in detail.

The price of platinum currently stands at $1,572.60, slightly above the year average, which has ranged from $1,380 to $1,740. Both platinum and palladium prices have dropped from their February 2013 highs.

Russia is the world’s top palladium producer, supplying 43.3% of the industry. South Africa is the largest producer of platinum, with a 77% market share, and Russia is second, supplying 11.6% of the market. Together, they almost have complete market dominance of platinum, at nearly 90%, and a partnership between the two is certainly noteworthy.

According to Paul Renken, mining analyst at VSA Capital, “because of this oligopoly – a market dominated by a small number of suppliers – the cartel and the countries involved (other producers would be allowed to join) would have significant influence for the monthly, quarterly and annual outputs of these individual countries, but specifically there is going to be co-operation between these countries as to exporting their materials. That will eventually create a higher level of stability in an otherwise more volatile pricing market. They would become ‘price setters’ of these platinum group metals.

Renken does not expect a “big change” in markets initially, but forecasts a general trend of increased prices, as there would be a higher level of discipline in order to support particular profit margins of the exported platinum group metals from these countries.

Prices would not go down in such a scenario.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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