South African production surge presses platinum and palladium prices

Platinum and palladium prices tend to be volatile due to a highly concentrated supply environment. Russia and South Africa together control the world铂族金属供应的70~80%。

Since the 1970s, platinum and palladium have emerged as an important part of the world automotive industry, and the supply structure of platinum group metals has not changed much since then.

Platinum futures on the New York Mercantile Exchange fell $28 an ounce on Thursday, down 2.4 percent from a 15-month high the day before. Palladium contracts fell 4.8 percent to below the $700 mark, down from a June high.

The jump in supply was one of the reasons behind the sharp drop in platinum group metals prices on the day. Data from South Africa showed that mines on the country's platinum veins were booming production.

South Africa's platinum and palladium production fell 12.4% in June from the previous month, but May output was the second highest on record and production was still higher than a year earlier.

Gains from sales of platinum group metals in local currencies also hit a record high in May. Capital Economics pointed out that this benefited from the highest monthly increase in platinum prices in non-currency denominations in the south since the first half of 2014. The South African rand was one of the worst performers among emerging market currencies in the first half of the year, although it has strengthened in recent months.

London-based Capital Economics said the increase in platinum group metal production reflected the continued price growth since the start of the year, which has reduced producers' financial willingness to cut production.

In addition, industry leader Amplats has decided to accelerate production in the second half of the year to meet its 2016 production target due to supply disruptions earlier this year.

The surge in output in the second quarter is likely to be the result of producers preparing for summer wage negotiations with unions. In an industry where labor costs account for half of operating costs, producers may decide to build up inventories in case the negotiations lead to supply disruptions.

Although prices have retreated, platinum prices still outpaced gold in 2016, rising more than 33% year-to-date. Platinum prices rose 12.7% in July, their best monthly performance since 2012.

Sister metal palladium had its best month in a decade, surging 21% in July. Its performance in July made up the bulk of its year-to-date gains. The metal has rallied 47% or $220 an ounce since its January 12 low.