According to Nedbank CIB mining analyst Arnold van Graan, the South African gold and platinum group metals industries continue to face challenges.
Rising labour costs, regulatory uncertainty and a lack of capital investment continue to hamper output levels, adding further cost pressure.
“If anything, the high levels of unemployment in South Africa will continue to be met with less job opportunities in the mines as the mining sector shrinks,” says van Graan.
In addition he notes that on-going restructuring in the South African platinum group metals industry is expected.
However, the labour reductions and restructuring undertaken in 2017 should start to come through on the bottom line in 2018.
“With current synchronisation in global growth, most market commentators tend to simply accept a period of stronger commodity prices ahead.
“We believe this view ignores the real threat from a Chinese slowdown,” says van Graan.
Further Nedbank CIB mining analyst Leon Esterhuizen notes that considering China and its impact on the world’s commodity prices, their expectation for 2018 is a bit more bearish.
“China drives the fortunes of most commodities and though the threat of a hard landing in China seems to have dissipated, future growth rates are still expected to be lower – in particular when we look at 2017,” notes Esterhuizen.
He mentions that the Chinese credit impulse is a leading indicator of GDP growth.
“Credit growth in China has been a key driver of commodity prices, as traders and speculators used cheap credit to drive up commodity prices.
“When this is combined with the synchronised global growth view, it could be that South Africa could essentially stumble through another year of flat commodity prices.
“Possible exceptions would have to be commodities with particularly tight supply-demand dynamics. “Platinum group metals and copper fit this bill,” he comments.
Esterhuizen and van Graan assert that the platinum group metals market is set for a rally in the price of platinum on improving supply-demand fundamentals.
“The production base continues to shrink while underlying demand drivers remain more robust than most commentators are factoring in and we expect this trend to continue, despite a slowdown in China.
“The current high palladium price further supports this view, as we believe substitution pressure will drive increasing platinum demand,” they continue.
“We believe that the threat of electric vehicles is overblown.
“We also believe that the market is over-estimating the demise of the diesel auto market share, as growth in other markets offset some of the European market share losses.
“Platinum is therefore our favoured metal as we expect substitution back into platinum, at the expense of palladium.”
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