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    Analysts split on whether platinum price will lift output
    October 17, 2005

    By Eric Onstad

    Johannesburg - Platinum output is due to rise next year as delayed expansions kick in, but analysts are divided on whether record-setting prices will quickly fuel even more supply.

    Platinum prices, which last week surged to their highest levels in more than 25 years on speculative buying, have been partly pushed up in recent years by the trimming of expansion plans by local producers, helping prolong a market deficit.

    But the metal's rally, coupled with a turnaround in the rand, is prompting a major rethink, according to some.

    "I think the expansion in South Africa is potentially quite aggressive and quite fast," said analyst Leon Esterhuizen at Investec Securities in Johannesburg
    "Expansion in South Africa is potentially quite aggressive and quite fast"

    "There's still a fair amount of easy pickings, open-pit type material, expansions in terms of brownfields."

    The world's biggest producer, Anglo Platinum (Angloplat), had been muted in its public response to higher prices, but some expansion decisions had probably already been taken behind the scenes, Esterhuizen said.

    However, after having to embarrassingly cut back on ambitious growth plans over the past few years, expansion decisions were not likely to be made public until the last minute, he said.

    The price of platinum, mainly used in jewellery and catalysts to clean motor exhaust fumes, has gained about 10 percent this year. The local price, however, has shot up 30 percent as the rand weakened against the dollar.

    Over the previous two years, a stronger rand cut export income and weakened the viability of many projects, forcing them to be put on ice.

    The eastern limb of the Bushveld complex - the world's biggest source of platinum group metals (PGMs) where many projects have been delayed - could now be a major growth area.

    "The infrastructural investment there has been quite aggressive, quite extensive and has been completely underutilised," Esterhuizen said. Local output should rise slightly this year and then climb by 7 percent to 9 percent in 2006, he added.

    But other analysts cautioned against too much enthusiasm about local supply rising quickly.

    Bruce Alway, a senior analyst at GFMS consultants in London, agreed that supply would expand next year, but much of that extra production was delayed because of technical reasons, not low prices.

    "Most of that growth you're seeing is coming from mines that are either in construction or expansions that are under way," he said, citing as an example Angloplat's expansion at the Kroondal mine along with partner Aquarius Platinum.

    He expected global mine supply to rise 2.5 percent to 6.5 million ounces this year, from 6.34 million ounces in 2004, but then surge by 12 percent to 7.29 million ounces in 2006. A breakdown for local production was not available but most global growth was from the major producer, he added.

    Producers will be cautious about launching new projects until they are certain that high prices are sustainable.

    "I can't really see a dramatic change based on the current rand situation, unless it looks like a longer-term trend. It's a bit early in the cycle to start saying let's push the button on these projects," Alway said.

    Another sceptical Johannesburg-based analyst, who declined to be named, said prices should not be given undue focus.

    "I think there are more problems in the industry than the simple question of prices," he said. "You need to see through some of the structural and technological problems."

    Processing hiccups was one area that could hold up mined production coming to market, he said. Angloplat last month cut its 2005 production forecast by 150 000 ounces to 2.45 million ounces after an explosion at its Polokwane smelter. Number three producer Lonmin also has had difficulties at its smelters.

    "If the basket [price of PGMs] remains where it is, then clearly there is scope to develop some of the mines that have been on the back burner for a while, but let's not be carried away about what is likely to be the rate of increase," the analyst said.
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