Why does supply/demand not seem to apply to platinum mining?

[Chicken Boo]

So of course there's the strike going on and the mining companies are saying profits were down anyway because of the drop in price last year (what caused that?). My layman's understanding is that if production is dipping, the price should be going up? Seems to work that way for oil and OPEC.
If, as the mining companies claim, there is so little profit then why are they mining at all?

http://www.citypress.co.za/business/platinum-mines-making-money-implats/
(yeah I know, citypress, but I heard the same story from other news channels last week)

 

[Ecco]

Supply can come from elswhere in the world.

If i want platinum, and i know SA is an unreliable source - i will switch my orders to another country. I would be reluctant to move my orders back if i know there is a high chance of a disruption in supply.

 

[OrbitalDawn]

AFAIK platinum exports are also not as high as they should be. If people aren't buying the platinum anyway, then the drop in production won't necessarily raise the price.

There are many factors involved that don't make it an ordinary supply/demand situation.

 

[OrbitalDawn]

Supply can come from elswhere in the world.

If i want platinum, and i know SA is an unreliable source - i will switch my orders to another country. I would be reluctant to move my orders back if i know there is a high chance of a disruption in supply.

We have something like 90% of the supply, don't we? Zim has quite a bit, too, but yeah, Zim...

 

[MrGray]

Mainly because 60% of platinum demand is from the automotive sector for catalytic converters and the car manufacturers haven't exactly been enjoying boom times, not to mention that they probably have stockpiles of the stuff, and are increasingly finding cheaper alternatives.

 

[Scooby_Doo]

Pretty sure there are stock piles of the metal lying around. Now if that were to get depleted then you might see something.

 

[IzZzy]

Stockpiles.

 

[Chicken Boo]

Mainly because 60% of platinum demand is from the automotive sector for catalytic converters and the car manufacturers haven't exactly been enjoying boom times, not to mention that they probably have stockpiles of the stuff, and are increasingly finding cheaper alternatives.

http://www.ibtimes.com/here-are-dec...-gm-ford-chrysler-toyota-honda-nissan-1525492

Selected quotes from above link:

Lexus had its best sales month in seven years... RAV4 sales shot up 46 percent in December compared to last year, ...Corolla sales for the year increased 3.9 percent...For the year the U.S. subsidiary of the Japanese automaker [Honda] sold 1.5 million vehicles, a 7.2 percent increase and the company’s second-best year on record...Nissan’s U.S. sales jumped over 9 percent in 2013...The Detroit 3 automakers sold a combined 7.08 million cars and light trucks in the U.S. in 2013, with a combined average of 9 percent growth from 2012.

*shrug*

Stockpiles 'ey... makes sense.

 

[Nicodeamus]

Profits go up for the other mines, not the ones affected by the strikes. Remember it costs money to pay workers and operators and if they don't produce anything then costs to the mines will go down and the company suffers a loss. The Platinum that has already been mined however goes up.

 

[MrGray]

Lexus had its best sales month in seven years... RAV4 sales shot up 46 percent in December compared to last year, ...Corolla sales for the year increased 3.9 percent...For the year the U.S. subsidiary of the Japanese automaker [Honda] sold 1.5 million vehicles, a 7.2 percent increase and the company’s second-best year on record...Nissan’s U.S. sales jumped over 9 percent in 2013...The Detroit 3 automakers sold a combined 7.08 million cars and light trucks in the U.S. in 2013, with a combined average of 9 percent growth from 2012.

Sure, but this is at the end of an epic 6 year long contraction in global car sales, so these figures are coming off a low base. (The contraction is probably why there are healthy stockpiles in the first place). Notwithstanding the current upturn in the car market, the demand driver will always be future perception of the market.

 

[DJ...]

Because it is a listed, traded commodity where prices are external of traditional supply and demand paradigms of extraction and manufacturing. There is a lot of capital yield in commodities that have nothing to do with the underlying asset's use in these markets.You'll find that even when metal commodities are in surplus phase, they still hold their value and even see positive flows of investment, resulting in an upswing in prices. It is no longer a matter of traditional pricing of fundamentals, but rather about where an investor can find yield.

In a market like China's their investors' primary objective is to identify capital appreciation as that's traditionally been tough to get with the banks, so they have cash to move - so where do they move it? Commodities. This allows commodity prices to be manipulated, external of the fundamental market drivers of the underlying asset. Now imagine that scenario played out at 20X to 100X margin, and they can do more than just manipulate prices - they can dictate them to an extent, which is partly why platinum and gold have been resistant to traditional fundamentals challenges like supply and demand.

EDIT: another way to look at it is that supply and demand equilibrium prices are no longer important when so many marginal investors are putting their cash into commodities. The manufacturing guys have no choice but to buy at market prices, and this is how the market sustains its pricing to a large degree, as there is surplus that is sold at these prices. And the surplus phase continues, while marginal investors drive the prices. They wield a bigger stick in the commodities market. The only way to prevent this imbalance from taking place is to remove the option to purchase metals on margin, but that is not feasible as metals are often correlated with interest rates, which makes them a cheap risk-mitigator when traded through a treasury function on margin. Remove the option for margin-traded metals and you add massive risk to the market and cause a liquidity crisis, as well as slowing economic growth, adding pressure to spending, contribute towards massive spikes in inflation, and much, much more...

 

[dlk001]

So of course there's the strike going on and the mining companies are saying profits were down anyway because of the drop in price last year (what caused that?).

Profits were down due to

Low Revenue

- lower commodity prices, in the case of platinum due to slow demand, stockpiles and recycling of platinum

Higher Production Costs

- lower production volumes due to strikes which in turn increases mining cost
- safety stoppages by the DMR. Section 54 stoppages for safety transgressions which often lead to a temporal closure of a shaft/section
- general inefficiencies. In the case of Anglo, 71% of Anglo Operations are not meeting their targets (mine to plan)
- rising electricity costs and fuel

If, as the mining companies claim, there is so little profit then why are they mining at all?

Mining companies have short-term, medium-term and long-term plans. Every year, these are often evaluated and decisions are made. In the case of platinum, there is still a long-term positive outlook. SA mines can cover most of their cash costs but adding capital and exploration costs to opex make some mine expansion unprofitable.

Anglo Platinum decided to review their operations. Following that review, the risk-reward of keeping some of the platinum shafts was not worth it. However, many other shafts are still profitable in the long-term based on current data.

 

[Mila]

You should be the appointed " explain the difficult stuff to the commoners( Mila) " person on Mbb. Lol.

Thanx

I read an article about it you just put it in to context.

 

[Chicken Boo]

Ah all is well with the world again.
http://www.moneyweb.co.za/moneyweb-mining/mining-strike-to-drive-up-platinum-price

 

[Albereth]

Alternative products

 

[Devill]

So of course there's the strike going on and the mining companies are saying profits were down anyway because of the drop in price last year (what caused that?). My layman's understanding is that if production is dipping, the price should be going up? Seems to work that way for oil and OPEC.
If, as the mining companies claim, there is so little profit then why are they mining at all?

http://www.citypress.co.za/business/platinum-mines-making-money-implats/
(yeah I know, citypress, but I heard the same story from other news channels last week)

When it is not a necessity but an extreme luxury mostly, you will find that when the world is going through a bit of a financial tough time the price will drop.