RECENT price strength in platinum shares on the Johannesburg Stock Exchange is “purely speculative” according to mining equities analyst at Standard Bank Group Securities, Adrian Hammond – and he does not expect a proper recovery in the sector until next year.
Taking part in a panel discussion at the PGM Day conference held in Johannesburg on Wednesday, Hammond commented: “The basket (the average price received by the platinum companies over the suite of platinum group metals produced) has moved slightly. That was maybe enough to trigger some speculative buying.
“In terms of the shares these are highly leveraged businesses, particularly Impala Platinum and Sibanye-Stillwater. It just takes a marginal change in the basket price to elevate those earnings so that could drive share prices quite easily. But nothing fundamental has changed and the trade has been one of foreigners buying and locals selling and volumes have generally been quite low.”
Hammond added: “We need to at least see the usual green flags such as OEM (original equipment manufacturer) buying, lease rates, and sponge premiums. Those things have to come to the fore to tell us that actually there is a fundamental change.”
JP Morgan equity analyst Catherine Cunningham commented: “There is a bit of head scratching. Nothing fundamentally has changed.”
Despite these assessments platinum stocks have jumped markedly over the past month. Implats shares bottomed at R57/share on March 5 from where they have risen 63% to around R93/share on Wednesday.
Over the same period Sibanye-Stillwater has rebounded 41% from around R18 to R25.74/share while Northam Platinum is 43% higher at R136 from around R95/share.
Hammond commented that the problems currently facing the platinum sector were “both short-term and structural together.”
“I am not going to sit here and tell you we are in a deficit market even though that’s the consensus view because the prices don’t show that. Clearly it’s not true.
“When you analyse those bits and pieces you will probably find we are actually in quite a structural surplus at the moment and the question is when does that turn.
“We think it will turn next year. There are silver linings but as Standard Bank we are still underweight the sector. When we see those green flags around the sector turning we will get excited, but I think there is pain to come with consensus still well too north of where reality is in terms of earnings for these companies.
“It’s something to watch but we will remain cautious for now.”
