Stillwater sees 'robust' outlook for palladium, other PGMs

TORONTO – US platinum-group-metals (PGM) miner Stillwater Mining expects to benefit from stronger PGM prices overall, and in particular from a narrowing of the gap between platinum and palladium prices, CEO Frank McAllister said this week.
Prices for palladium, platinum and rhodium have all moved strongly ahead since the start of the new year, continuing a steady recovery that began in early 2009, Stillwater said.
Palladium was quoted at $425/oz on Wednesday, well above the low of $164/oz reached in the fourth quarter of 2008.
"Given the severity of the 2008 economic meltdown, the depth of the corresponding downward price movement in PGMs perhaps was understandable, but the magnitude and momentum of the subsequent recovery in PGM prices clearly has caught many observers by surprise,” McAllister said in a statement late on Wednesday.
“Palladium at the moment is faring best, having fallen the least and recovered the most, currently off just 27% from its 2008 high. Platinum also has done well, at present down 32% from its high. Rhodium remains down 73%."
At the same time, there has been a convergence of the palladium price towards the platinum price, he commented.
“Last March palladium was trading at just 18% of the price of platinum. Today palladium is priced at 27% of platinum, having closed some of the price gap, but still priced very attractively relative to platinum and rhodium.”
Stillwater expects to see this price gap narrow further, as research increases the potential for substituting palladium for platinum in more and more applications.
"Both the stronger PGM prices and the narrowing of the price gap between palladium and platinum are good for Stillwater with its 3,3 to 1 palladium to platinum mine production ratio,” McAllister said.
PGM prices are being affected by weakness in the US dollar, a surge in precious metal sentiment and investment and the newly approved US exchange-traded fund securities for both platinum and palladium, he commented.
The biggest producer of platinum, South Africa, has seen steady declines in PGM production levels since 2006, despite strong prices and earlier projections of aggressive growth, McAllister said.
“Concerns about South African production have driven the stronger PGM pricing we have seen over the past year.
“And given the predominant role of South African production in meeting world PGM requirements, PGM pricing in the end will always be influenced by the South African PGM market basket with its 2 to 1 platinum to palladium bias, in particular during times of a market shortage of the metals.
“The bias also suggests a continuing need for a strong platinum price to entice the production necessary to meet world PGM requirements.”
However, even after recent gains, current basket prices leave the cost structure and capital sustainability of many South African mines at risk.
On the demand side, surging auto demand and environmental requirements in the developing world are the largest growth factor for PGMs, McAllister said.
“With over 50% of the demand for all PGM metals now competing for the catalytic converter market, price is now the determining factor, which makes palladium the metal of choice.
“With this shift progressing, the auto market growing, and the exhaustion of Russian stocks nearing, price convergence between palladium and platinum will shortly become a reality and determining the appropriate price equilibrium between the two will be a new market riddle.”