Amplats' ACP Unit B closure to tighten PGM supply: analysts

London — Platinum group metals markets are expected to tighten further and see prices gain traction following the announcement by Anglo American Platinum that it will close its Anglo Convertor Plant Unit B at its Waterval smelter complex for a full rebuild.

"The announcement removes 350,000 oz platinum, 250,000 oz palladium and 34,000 oz rhodium supply in 2020 -- this should further tighten PGM markets and push prices higher," Barclays analysts said in a research note.

"We estimate that this would increase the platinum, palladium and rhodium deficits for 2020 to circa 750,000 oz (10% of gross demand), 1 million (11%) and 107,000 oz (11%), respectively," Barclays said.

Commerzbank commodities analyst Carsten Fritsch said approximately half of Amplats' output outage is likely to affect platinum; the other half palladium and rhodium.

"It is probable therefore that the World Platinum Investment Council, when it presents its new figures for the platinum market in two weeks' time, will revise its forecast for platinum mining production in South Africa further downwards," Fritsch said.

"According to the WPIC, the global platinum market is already likely to show a supply deficit of 336,000 ounces this year, despite weaker demand due to corona," Fritsch said. "This deficit could now turn out to be even somewhat bigger."

Amplats -- one of the world's largest platinum and platinum group metals producers -- said the troubled convertor plant, which has been plagued by water leaks, would need to once again close for a full rebuild that will last through 2021.

As a result, Amplats has lowered its refined production guidance for 2020 to 2.5 million PGM ounces, from the previous coronavirus-hit guidance of 3.1 million-3.3 million oz.

Amplats' initial guidance for 2020 stood at 4.2 million-4.7 million, a 43.8% drop due to the coronavirus and the ACP breakdown, said South African research firm Afriforesight.

StoneX Group head of market analysis for EMEA and Asia regions Rhona O'Connell said Amplats' 2019 output of four platinum group elements -- platinum, palladium, rhodium and gold -- amounted to 4.4 million oz, with platinum production of 1.4 million oz and palladium output of 1.1 million oz.

"These numbers suggest a potential drop of 0.6 million ounces of platinum and 0.4 million ounces of palladium," O'Connell said. "Work-in-progress inventory will be built."

Contingency plans

Amplats said it had contingency plans in place and will be engaging with customers to minimize any disruption to contractual obligations, with refining only expected to resume when Unit A repairs are completed at the end of 2020.

In February, the company's ACP Unit A suffered an explosion, which forced its closure for repairs that caused the company to declare force majeure.

The Johnson Matthey rhodium London base price on Nov. 9 stood at $14,700/oz, up 0.7% from Nov. 6, equaling its Oct. 22 all-time high. The JM price is for metal in sponge form with minimum purity of 99.9%.

The Platts New York Dealer rhodium price range rose to $12,800-$14,500/oz for the Oct. 30-Nov. 5 period from $12,800-$14,300/oz the previous week. The price reflects transactions of rhodium sponge between dealers, refiners/recyclers, investment banks and industrial consumers.

The JM platinum London base price on Nov. 9 increased 0.6% from Nov. 6 to $909/oz, while the JM palladium base price rose 2.7% to $2,484/oz.