Annual Report 2008

Market review

While demand fundamentals were the main drivers of Implats' major markets and hence pricing levels in previous years, the last year was somewhat different. Disappointing supply figures from our major South African competitors conspired with a near collapse and shut down of South Africa's electricity grid, along with skills shortages and safety-related shutdowns, to leave the platinum and rhodium markets woefully undersupplied. The palladium and nickel markets were less affected by these issues as South Africa is less significant in these markets.

The consequence of the above factors pushed the platinum index to a high of $3 846 during March 2008, and left the year average at $2 890 – some $637 higher than the prior financial year. The current high prices of platinum and rhodium will further damage the jewellery and automotive markets respectively.

Platinum

Further reductions in platinum jewellery demand were more than adequately compensated for by higher demand from industrial applications, as well as the newly launched exchange-traded funds (ETFs) which took nearly 200 000oz from the market, and this subsequently doubled by the end of June. The growth in diesel vehicle penetration, while still evident, slowed somewhat as diesel prices increased at a faster rate than gasoline.

A near 300 000oz decline in South African production has left the market in a fairly substantial deficit, exceeding 400 000oz, resulting in prices firming throughout the year. After reaching highs of $2 276/oz, the market did give back some of its gains to end the period just shy of $2 100/oz, leaving the 12-month financial year average at $1 637/oz, some 36% higher than the prior period.

Platinum price - monthly average Platinum supply demand

Automotive demand

The automotive industry remained the backbone of platinum usage in 2007 with demand once again being driven by a combination of increasing market share for light-duty vehicles, the adoption of stricter diesel emission legislation and an increase worldwide in heavy-duty diesel retrofit programmes. The trend of substituting platinum by palladium, a practice made possible in part by the introduction of low sulphur fuel, continued throughout the year. However, the impact was partially tempered by the increased usage of particulate filters and the use of other emission technologies which require higher platinum loadings.

Light-duty diesels continued to gain market share at the expense of their gasoline counterparts in Western Europe and the region now accounts for approximately 45% of global automotive demand. The other major growth area was heavy-duty vehicles. Demand in this sector, including that for off-road and retro-fit vehicles accounted for close to 20% of total demand. This was driven by the introduction of stricter emission legislation which required increased loadings in both North America and Europe.

Jewellery demand

Once again the high price exacted a toll on jewellery demand, with a 4% drop in metal usage. Given the magnitude of the price rise, this performance can be considered resilient in the company of a myriad of cheaper alternatives. The $2 000/oz threshold also unearthed a wave of recycling, particularly in Japan, where an enormous pool of liquidity which had built up over the last 20 years, began to filter back to the market and was an important factor in the price relief experienced toward the latter part of the financial year.

Automotive demand by metal Jewellery demand by metal

Palladium

Rising vehicle sales in the BRIC economies have boosted growth in demand for this metal. These sales are predominantly gasoline-fuelled vehicles and hence are fitted with palladium catalysts. Feeding this growth has also been further substitution in diesel engine catalysts as the price differential between platinum and palladium encourages substitution from the more expensive platinum. A reduction in Russian de-stocking for calendar 2007 reduced supplies for the year, but this still left the market in surplus. Interestingly, Russian behaviour during the early part of 2008 suggests that their programme of de-stocking may be nearing an end.

The friendlier fundamentals of this metal pushed prices to a high of $588/oz during March 2008 but these levels subsided toward period-end to the $460/oz level. Average prices for the period under review climbed nearly 20% to $395/oz.

Palladium price - monthly averagePalladium supply demand

Rhodium

The calendar year showed another deficit for this metal as further growth in both the automotive and industrial sectors saw the price breach $10 000/oz for the first time. This near-doubling (again) of the metal's price will no doubt encourage some thrifting activities by the major auto companies. This together with a slowdown in western world vehicle sales, implies that this price euphoria should be short lived.

Rhodium price - monthly averageRhodium supply demand

Nickel

Nickel price - monthly average

The market started 2008 with low stocks and healthy demand from all sectors which resulted in increasing prices. This trend continued through the first half of 2007 with record low stocks and prices in excess of $50 000/t being reported.

This situation unfortunately did not follow through to the second half of the year. Demand from the stainless steel industry dropped and total nickel consumption declined by more than 5% compared with 2006. Nickel production also increased in 2007, resulting in an increase in LME stocks, and consequently prices halved to $25 992/t in December 2007.

Production of nickel pig iron in China increased due to the extremely high nickel prices during the middle of 2007 and became the swing producer for the nickel market

Ruthenium

Unlike our other metals, it was a very long year for this metal. Having scaled $800/oz during the prior financial year, the price slid to below $300/oz at the end of the 2008 financial year. This was primarily due to the increased efficiency in the recycling process which increased metal availability, rather than to any softening in demand.

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Implats - Annual Report 2008

 | Forward-looking statements