Power Crisis Threatens Platinum Market, Global Supply at Risk

Loadshedding South Africa
  1. South Africa’s increasing load shedding could lead to severe disruptions in the global platinum market, as the country accounts for 73% of the world’s platinum production.
  2. Prolonged power outages threaten to significantly impact platinum mine supply, causing a market deficit and driving up platinum prices.
  3. The domino effect of halted mining operations would negatively affect local businesses and the broader South African economy, with potential structural changes in the platinum mining industry to cope with power supply issues.

Increased load shedding in South Africa this winter could have disastrous consequences for the global Platinum Group Metals (PGM) markets, according to a new industry report. South Africa, which accounts for 73% of the world’s platinum production, faces an escalating power supply crisis that could severely impact platinum mine supply and result in a significant platinum market deficit.

The report, authored by independent precious metals consultant David Davis for Singapore-based Auctus Metal Portfolios, highlights the potential repercussions of a prolonged decline in power generation in South Africa. “The shutdown of platinum mines for extended periods will have an enormous impact on global mine supply, resulting in a platinum market balance deficit, which in turn, will put significant upward pressure on the price of platinum,” Davis stated.

South Africa’s largest PGM producers have warned that if load shedding escalates to Stage 6, requiring the curtailment of 6,000MW of demand at any one time, they would have to reconsider sending workers underground. Davis’s report suggests that production impacts can already be felt during high intensity and duration of Stage 4 load shedding, with operations ceasing at prolonged Stage 6 load shedding.

Impala Platinum, in its latest quarterly production report, revealed a 5% decline in metal production due to load curtailment requirements. The new electricity minister also indicated that the energy shortfall this winter could rise to as much as 10,000MW, implying that Stage 10 load shedding could be on the horizon.

Davis expects load shedding beyond Stage 6 to impact platinum mine supply by between 12% to 20% at least, resulting in a global supply reduction of around 9% from 2023 to 2027. These predictions are supported by estimates from Sibanye-Stillwater, which anticipates its own PGM mine supply to decline by 15% in the event of high frequency load shedding.

“The impact on the quantum of decline in mine supply of PGM platinum due to high frequencies of load shedding is significant and will be far-reaching, touching every aspect of PGM demand, in particular, the supply and demand for platinum,” Davis said. He emphasized that the resulting deficit in the platinum market balance will significantly drive up the price of platinum.

Bruce Williamson of Integral Asset Management concurs with Davis’s assessments, adding that if underground shifts in the precious metals industry are halted, the resulting loss of revenue and impact on local businesses dependent on these mines will have a “massive, negative domino effect” on the economy.

Although a supply crunch may increase metal prices, miners will likely experience significant costs and reduced revenue, Williamson noted. He warned that production losses between 10% and 20% would be disastrous for South Africa’s already fragile economy.

Despite government efforts to address the energy crisis, Williamson fears it is too late to fix Eskom, the country’s power utility. Davis shares this sentiment, anticipating that high intensity and frequency of load shedding will persist, causing bottlenecks and interruptions in smelting, converting, and refining operations. This will likely result in a structural change in the South African platinum mining industry to maintain equilibrium with the power supply.

“These results will have a significant impact on mining operations: unit costs will increase significantly, capital expenditure and margins will decline unless offset by an increase in the basket price of PGMs in [dollars]. Moreover, supply chain problems will be a barrier to efficient operations as the rest of South Africa will also be overwhelmed by this catastrophic decline in power supply,” Davis concluded.

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