By: Rhona O'Connell, Head of Market Analysis
Implats delivers “stellar results” – while freight rates go through the roof
Impala Platinum has reported its full-year results this morning (year-end 30th June), with a 125% increase in earnings, reflecting “a record rand PGM basket price, improved operational momentum and higher sales… despite the challenges presented by Covid-19 and the erratic provision of essential services”.
Impala’s production, including third-party concentrate receipts, increased by 16% year-on-year to 3.27M ounces of 6E, with the dollar basket price up 59% to US$2,587 and the company is forecasting continued tightening in the palladium and rhodium markets. Implats’ production of the major PGMs for the year were 1.52M ounces of platinum, a 12% gain and 1.12M ounces of palladium, a gain of 26%.
Our numbers suggest that palladium will again be in deficit this year, albeit smaller than those of recent years and amounting to roughly one week’s global industrial demand. We are expecting a similar imbalance next year.
The key, of course, is still the auto sector and by implication the semiconductor industry. As we noted in a Talking Point piece in late August here , we have pared our expectations for auto production by 7% for 2021, and although the year-on-year growth still shows a strong bounce in palladium use in the sector, our estimate of 8.3M ounces is the lowest since 2017.
Meanwhile the U.S. vehicle numbers for August make depressing reading, as do the French numbers, down 15%, and cumulative down 23% by comparison with January – August 2019. Semiconductor chips are being cited as the most recent cause as they are across the whole industry; sales in South Korea in August were down 5.6% against August 2020. U.S. light vehicle sales were down 11.1% against July and 14.8% year-on-year. Car sales were down 11.7% and 14.1% Y/Y. while light truck sales were down 11.0% and 15.0% Y/Y. On a cumulative basis, this takes vehicle sales for the first eight months of the year to ~129M, up by 18% over January-August 2020, but down by 5.1% against the first eight months of 2019. A number of major producers are now only reporting sales on a quarterly basis, so we will have to wait until next month for a full break-down.
Other elements of anecdotal evidence illustrate the parlous state of the industry with Stellantis planning to operate its Melfi plant in southern Italy for just five days this month; plants elsewhere in Italy are already suspending production and the problem remains a global one.
The supply chain issues are showing very little sign of alleviation. The consultancy IHS Markit has released a study suggesting that the supply chain disruptions will continue into 2022, and some industry executives are looking as far out as 2023. The study has noted that delivery lead times are the worst in at least 25 years as the strength of the economic bounce is putting untold stress on shippers. This is amply illustrated by freight rates, which have rocketed; the WCI composite freight rate has risen almost six-fold since June of last year, while the Chins to U.S. West Coast rates are up by more than eleven times. Warehouses are full at both ends of the very busy China-U.S. routes and container ships are being forced to anchor offshore outside ports across all continents.
Key freight rates
Source: Bloomberg, StoneX
Meanwhile the Chairman of the Taiwan Semiconductor Manufacturing ~Company (Taiwan-based companies have over 70% market share of contract foundries, the semiconductor manufacturers) took the view in mid-year that uncertainty combined with manufacturers stockpiling chips has exacerbated the situation and implied that there is enough capacity for semi-conductor manufacturing for the auto sector. In addition, the United States has a 25% tariff on Chinese semiconductor manufacturers; the United States Trade Representative is apparently considering reinstating some of the exclusions that expired under the Trump Administration.
China’s market share is only 7% of the global total, but a reinstatement of this exclusion would at least be a start.
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