South Africa’s Power Shortages Threaten Global Platinum Markets

South Africa’s power supply crisis may have far-reaching consequences for the global platinum market, warns a new industry report prepared for Singapore-based Auctus Metal Portfolios. If power outages in the country continue and disrupt production, the impact on platinum production may be catastrophic. South Africa produces 73% of the world’s platinum, so any profound decline in power generation will have far-reaching consequences. Independent precious metals consultant David Davis, said: “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.”

The report warned that if the load shedding moved beyond Stage 6, in which demand is reduced by 6,000 MW, and mining operations are carried out underground, significant consequences would result. Davis estimates that production impacts are already being felt at some operations during Stage 4 load shedding and will cease with prolonged Stage 6 load shedding. Impala Platinum has already reported a 5% fall in metal production due to load curtailment requirements. Meanwhile, the new electricity minister warned that the energy shortfall this winter could grow to as much as 10,000 MW, which implies that Stage 10 load shedding could be on its way.

Global platinum mining operations will be affected from 2023 to 2027 if load shedding continues beyond Stage 6. Supply could be reduced by about 9% as power shortages in South Africa bite into production. Sibanye-Stillwater indicates this will lead to a 15% decline in its own PGM mine supply, and the negative effects may be felt by the economy as a whole. Bruce Williamson of Integral Asset Management also warns that the loss of income will have a massive, negative effect on local businesses dependent on the mines, leading to further economic loss. Prices of metals may rise, but miners will continue to suffer losses. Williamson urges authorities to take urgent steps to address the energy crisis before it is too late.

Key Takeaways

• Industry report warns of catastrophic consequences for global supply of platinum caused by power outages in South Africa.
• South Africa produces 73% of the world’s platinum.
• A 9% decrease in production will be felt from 2023 to 2027 if power supply remains unstable.
• Sibanye-Stillwater predicts a 15% decline in its PGM mine supply.
• Decrease in mine production will have far-reaching consequences for local businesses and South Africa’s economy.
• Urgent steps must be taken to address energy crisis in the country.

The report warns that the situation may not change any time soon, as government efforts to fix state-owned utility Eskom may not bear fruit. Higher levels of load shedding may not be avoidable in the months to come. The report also suggests that Eskom needs to achieve a capacity of 50% among coal plants to prevent high-level load shedding over winter, but forecasts have been pessimistic, and the actual installed capacity has been well below this.

To maintain equilibrium with power supply, the South African platinum mining industry may need to undergo a structural shift in its operations. In the face of such a decline in power supply, smelting and converting operations may bottleneck, causing interruptions to the feed of refining operations, ultimately leading to a significant increase in unit cost, decline in capital expenditure and margins, and supply chain problems.

“Increasing the basket price of platinum-group metals (PGMs) in dollars is the only solution to prevent a decline in capital expenditure and margins,” Davis said.

With high frequency and intensity of load shedding here to stay, there is growing concern over the decline in power supply across the country. Smaller businesses and residents alike have suffered the most extended blackouts in years, leading authorities to call on greater investment for renewable energy sources to help independent power producers. Until more sustainable solutions are implemented, the situation looks set to deepen in the years to come, costing the country dearly, economically.