WESTERN PLATINUM DEPENDENCE: A RISK ASSESSMENT

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• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005374627
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• Document Creation Date: June 23, 2015
• Document Release Date: June 12, 2009
• Case Number: F-2008-01923
• Publication Date: January 1, 1985

Uir9clurate of
Inlcll(yvncv
Western Platinum
Dependence:
A Risk Assessment
APPROVED FOR RELEASE^
DATE: 06-09-2009
(b)(1)
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GI RS-/0009
Jammrp 1985
Con ~' ~ 8
 Western Platinum
Dependence:
A Risk Assessment
Y
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Janunm 14Ht
 strategic minerals. It follows a baseline study on important strategic
mineral issues done in late 1981 and subsequent reports on Shabu cobalt
Scope Note The acuilability ;cod dependability o(struegic minerals continue to
concern the United States and other im[s+n-dependent cownrics. Interest
in struegic minerals p+:akcd in the laic 1970s +chen rebels uvicc invaded
Zaire's mineral-rich Shaba resion, prompting substantially higher prices.
There w:[s alw concern Deer the concentration of many strategic minerals
in southern Africa and the Soviet l.'nion, and fear of an OPEC-like c:utcl.
Although interest has subsided snmc+chat during the past several years, the
united States cominues to reccaluate its stockpile goals and review
legislation that allows the government to subsidize dopustic mineral
industries, establish export controls, and set priorities for usage and
allocations during emergencies. This assessn[cm is part of a series nn key
 Western 1'latinunt
Uependcncc:
A Risk Assessment
He>~ Judgments Platinum group mcutlslPG\1si arc strttegically inrtwrt:un bccauxc of their
rryurnrnrn,n nrolm3ir use in relining petrolemn, and in making chemictls. fertilizer, optical
m N'l Orrnnher fYNI tibcra, and electronic devices. In panicukv, they have a number of military
nay icrrd in rhi~ rrPmr.
applirntions in jet engines, racket thruster, aviation fuel. printed circuits.
and losers. The United Stores and most Western countries nearly totally
depend on PG\f imports for domestic needs. South Africa and the Soviet
Onion produce Deer 90 percent of the world's PGMs and hold n similar
Despite this concentration tee regard a serious cuto(T as unlikely. Specifi-
cally, tee belicee that a deliberate disruption of PG\1 sunplics by either the
USSR or South Africa or collusion behveen the two is improbable:.
? \1'c doubt that the South African Government would jeopardize iu
reputation as a rcliablc supplier of many minerals even if U\'sanctions
tcere imposed against apartheid. The industry generates substantial
foreign exchange and employment opportunities. Likewise. the soundly
managed South African PGM companies have been consistently rcliablc
suppliers. encouraging the development of nett PGM uses through secure
supplies and stable prices. Strikes by black workers or bombings by the
African Kational Congress tANC) arc more likely: however, we doubt
that this q~pc of cutoff e'ould last longer than a few months.
? Although trc cannot anticipate the Soviets' actions, it seems they would
gain little by denying PGM supplies to the Nest. South Africa has the
capaciq~ and infrastructure [o increase PGM production and replace
Soriel-embargoed material. Although the Soviets arc saucy traders and
du attempt to manipulate prices, they have scrupulously met sales
commitments. Soviet exports oC PGMs to the Nest arc lower today than
a decade ago despite increased production. However, the export reduction
does not appear to be purl of any plan to deny critical resources l0
~~
ci xswuov
Januan~1935
 stockpiles.
? Off-the-shelf substitution of other metals for PG\7s.
A serious PG ~1 supple disruption enuld sharply raise Prices fur indicidunl
lirms such as proceswrs and retailers. Overall. the cost to the US econmm~
could be about S2 billion, according to one gorcrnment stud. In the
aggregate, ho+rcvcr, the market would make scvcrtl adjusuncnts to
eliminate env strategic consequences of a cutolT. These would include:
? Contraction in nonessential PG'.vl uses.
? Increased domestic production.
? Enhanced recycling.
? Rclcasc of PG ~1s from rctincr, imponcr. dealer, and government
Interest in trading platinum and palladium (utures contracts and acquiring
bullion, bars, and coins is on the rise, but, in our vieut will not create any
risk (or market disruption or imbalance Although periodic invcs[mcnt
pressures, coupled with an embargo of metal, probably would spur rapid
price increases, any market disturbance would be short. The ihrestmcnt
market tends to be both orderly and liquid, and in an emergency the US
Commodities Futures Commission can farce exchanges to restrict specula-
tion.)
 11'cslern Platinum
Ucpendcncc:
:1 Risk :lssessmcnt
G II'hr arr YG.tla rnnaiden?d arrarrXir minerals."
Plalinunt group ntclals IP(i \1s1 -platinum, pal6tdi-
unt, iridium, rhudimn, nnhcniunt, and osmium :uu
among the nunl'ud mincr:ds svatrgic w CS induary.
The) arc ralucd bccmac e(thcir extraordimv) ph)>i?
e:d and chemic;d prupurtie, :md their use in raining
1+ctroleunt. and in making ehcmicah, IenilircL optical
libcn, and ckctrunic dcricn. l'hrce I'(i\6 phui-
num. palladium, and iridium ~-:vc included m the
Rational Udumc Siockpilr0
1. ff'har are the malor aaa?a rt/YG.11a."
The autoanutirc. ckatriad. chcmictl. Jcacln, txuo-
Icum. glass, and dcncd induslrics consume nn+st
PG\ts. with aumntubilc c:ualysb :mcuuming lur LS
percent ul all platinum used tligure 1 i. The uluetramc
and dental indrotric arc the nutter p:dladium um-
t'iKure 1
Plsrlinum Grnup ~IeWls: l:S
Uemand brlndustry,1913-83
umo
rc.nn ,nu.m
c'a,mmuna
succ
rm?dcum
rcfmins
U in the abcmiual and
petroleum industries. PG\Is :uc mcd as capn:d
goods-as cuntptmrnl+u( Plain and cquipincm th:u
arc rcc}cl:tblc r;uhcr than :u pntducuon input that
Several of the PCi lb;dou h:n~c impiul:uu milituq
uses, ahhough the) am not mrd in large 4uantiUa.
The nwsl widespread application is in clccuonres as
svitehes, contacts, dntrudes, and printed circuin.
a~herc a high degree a(rcliubiliq is dnircd. 1'(i its
arc also used inlet aircraft engine magnetos, I:urn,
brake fluids, ariation fuel, and to iniproce the wm-
? Aura sector: As European countries begin adopting
emission standards similar to those in the United
States, PG ~d usage in catalytic conccrtcrs will rise
dramaticalh~. Sw'itzcrland, Stccdcn. and N'cst Gcr-
many (Federal Republic of Gennanyl hove already'
enacted air-qualil) standards, ;md the EC is wnsid-
ering reconnnending Comnwnin~-a'idc regulations.
European
ani>siun controls could st annua consumption of
I'(. \Is b) -tt0.000 troy ounces ar approximately 10
percent of 1983 world demand. Japan has been
phasing in a wutplex set o(cmission standards since
198'_. In addition W passenger cars, Japan's stan-
dards cover larger, diesel-burning trucks and buses.
Starting in 1986, Australia will also impose rcgula-
liuns similar to nc~ 1975 US stundards..4hhuugh
demand for PG?Is trill rise initially, the addition of
abides using coral>tic converters will swell the
supply of PG Vs available fur recycling and erentu-
all) depress dcntand far newly mined supply.
 Awtomative
Used prinmrilc in rnrnlrtic eonverlrrs, nhrrr 1 trgr
Donee of PGM1fs ran ,grppl v nmtrrial jar 64 ronrrrtrrs.
These raurrtrrx translonn tovie gas from automo-
bile eshantt .ptctenrs into harm/ess mater raper and
rarbnn dioxide.
Substiurtes: none.
Jewelry
Platinum has a high melting paint and is ea~trrmels?
hard, makirtRlexr(n?fubriration d~nrb and rost[r.
.~ numher of manwl'arturers hm~e developed a nex~
process jar making platinum chains and hope to
rapture a share of the huge Rold rhaln nrmket.
bfarket anal csta believe that ep'eetive marketing and
rhangrs in ronnmrer Paste ore needed to erpatd the
appeal of platinum /exeln~ outride Japan, x?here It is
most popular.
Chemicals
Used primarif v jot the Production ojJenili.ers. Anr-
nronia Ras and air are pumped through rherts al wire
Rau:e plated x?ith p/ainunr-rhodium allops ro pro-
dote nitric arid, a molar conrpanenl of jenili:ers.
PG:Ns are also used as rata4a(r jar pharmaceutirn!
products and in thejood-proressinR indusvJ'.
Substinaes: rare earth elements, nickel, ranadiunr,
and titanium in some ratahvir uses.
Glau
In most glass indunn? app/irarions, PGMr arc used
as rapha/ floods-as 6u,rhinR.c, spindles, or rnrribles.
As an ezanrple, o heated bo-c roared x?ith a platinum
alloy is used to rnakejrberglass and opticfibershom
nro(ten glass. The Platintmr ran x~ithsrand hlgh melt-
ing temperatures x?ithom oxidising and rontaminat-
fng the glass. Glassjor high-purity ranrera lenses is
Commercial wee oJ'fuel ce(Is: PGMs are used as
catalysts in fad cells-devices that convert liquid-
fuel energy directly to electricity without harmful
emissions, noise, or environmental damage. Al-
though large-scale introduction of fuel-cell technol-
ogy has been delayed, industry experts predict that
by the mid-1990s approximately 4 million kilowatts
of capaciq? (or about one-third of Ncw York City's
1982 electricity requiremenq will be installed.
nvlted 6t nonoxirli:in,? plnrinunt rruribles. Lr nrrr,
noneonunen?inl terhnulogtr.c, glncs rntauLs Jonued in
p(nlinunr rnrribles nrr axed in elervwrirs mrd snphis-
rirntrd arms svurnrs.
Substitutes mitre.
Petro/sum
Cara/rsls in several steps ajpevolrum re)inirrR and
rejonning Prorerms to upgrade the orlarte rntirt? in
gasoline.
Substituus: molrbdentnn, rhromiunr, nirkrl-bur at
a h(gher cast atd rrdured ejhrirncr.
Electronics
Used Dr pruned rinrrit.r, electrical junmres, thenno-
couplers, mrd elervical eonmrts bermrse they with-
stand corrosion while urainmining high randuetivitr'.
RerowrO', pla0nunt-clad anodes have been installed
on ship halls m combat corrosion.
Substftraes: silver, gold, anAtnngsten.
MedicallDerttal
/n dental applirariars, PGM compounds are used in
orthodontic appliances. /n Parenmkers, pfatinunr
electrodes arejastrned to the tips ojledds and wires.
A pfatinunr-based drug, risplatirr, has helped rontbat
cartrer.
Subst/uaes: gold and cermnirs in dental app!lralions.
New Applications
Cnrclb/es ojiridiuar are being used to grow synthetic
gems and loser rodsjor medical, nriliran5 and indus-
Rough estimates show that, bl' the end of the
century, fuel cells could require aPProzimatdy I
million troy ounces of PGMs or about I S percent of
current world production. YGMs arc not consumed
in the fuel cell, so they can eventually be recycled.
 Table t
World Production of Platinum Group
Metals by' Countq'
....
..
..
I97s
1979
19tl0
1961
1963
t987
Tmal _ - _
~~ ~ -
6,780
48a] ... ..
7,tg8
7,7at
7,0J1
7,t8I
Auslnlia
II
10
U
10
H
N
Canada
7!6
198
!11
!00
338
167
Colombia
I1
I7
1!
IS
30
3n
Sumh:\ftifa ~~ - -~
~
3sW ~
__
3.017
J,100
t,000 --
3,600
3.600
l.'SSR
....
1,y00
3.600
J.70D
7.900
_
{100
1.300
United Slates
8
]
7
]
N
6
Other
!3
!2
!]
50
61
]5
3. Are PGMS di,9'erenllrom other sbaregir
mtnerols?
Yes. Although many of the issues rcles?ant to other
strategic minerals--availability of substitutes, possi-
bilities for recrding, and conservation-apply to
PG Ms, platinum and palladium differ from them in
one important way. Because they are precious metals,
they arc used not only far industrial purposes but also
for investments. Therefore, the availabilit>? of supplies
depends in Par[ on investors-both speculators and
hedgers-who increasingly determine demand for the
metal and its price. Although PGMS are primarib~
industrial materials and supply and demand factors
have the most influence, the addition of investor
demand is potentially important. Periodic investment
pressures, coupled with an cmhargo o(metal, could
spur rapid price increases and cause spot shortages.
Q. Who are the major producers q/'PGMsT
The USSR and South Africa mine over 90 percent of
the world's PGMS. Canada and Colombia arc also
producers, and the Unitud States recovers small
amounts of PGMS as byproducts of copper mining
(table 1, figures 2 and 31. Major PGM producers arc
unlikely to change. South Africa has the largest
reserve base-970 million troy ounces: the Sm~ict
Union, 200 million troy ounces. The United Staes
and Canada, in comparison, have negligible reserves
of Ib million and 9 million troy ounces, respectively.
The specilic PGM content of the carious world ore
budics diRcrs. A typical sample mken (rum the
\orilsk region of the USSR contains platinum and
palladium in a ratio of 1:2.5. In contrast, in South
.4fricun ore extracted from the Mercnsky Recf of the
Bushveld Igneous Compicx, Dlatinum outweighs pal-
ladium by a ratio of 2.4:1. Consequently, the Soviet
Union is the most important actor in the world
palladium marker. South Africa is the most important
in the platinum markel0
? Canada produces PGMS as byproducts of nicket-
copper production in the Sudbury District, but its
annual production is low, compared with that of
South Africa and the USSR. Platinum and palladi~
um occur in roughlc equal proportion,
 h7gure 2
9lgjor I'roducun and C'onsumcrs of Platinum Group )lcmis IPGJis)
V,XN SI?t?r
Il4l
L}HObTM?
t' nnwmr
I MVp, IGM O~Nr['M mauV
~' XuMNeXVVxyyvY innlM
? ILYH M
Mun mnln lx Srv0lL[V~
~- YM Senn ?eM ..pm
L~ X
Sounl Anlet~
? Colombia is likely to remain only a minor producer
of PGMs. Colombiak deposits, nn the Choco coast
plain, contain platinum, gold, and silver. Rcscrecs
and resources arc minimal, and, according to US
Bureau of Mines analysts, most of the mining
equipment used for current production is obsolete.
? Zimbabwe has PGM resources in the Great Duke
region, but there arc no major mining operations.
The are contains significant amounts of nickel and
copper. Platinum and palladium x'ould be mined as
S. Dcesn 4 the United States hnre domestic PGA!
resources'
Yes, but most of them arc not economical al current
prices, The only primary PGMs being recovered
domestically are byproducts of copper refining, and
they supply less than I perecm of annual domestic
consumption. There arc, hawcrer, several idenlihed
US deposits. These include three nonoperating depos-
its: the Stillwater Complex in Momma, controlled by
Stilhvater PGM Resources (a joint venture beuvocn
btancille Products Corporation and Chevron Re-
sources Corporation) and Anaconda blincrals la divi-
sion of Atlantic Richfiddl: IXCO's [ly Spruce depos-
it in northeastern Minnesota: and AY[AX's
Minnamax deposit in the same area. A fourth deposit,
along Alaska's Salmon River, had been mined bc-
[srccn 1934:+nd 1975, and 1980 and 1982, but is
currently out of business. The US Stilhvater deposit in
Montana. according to industn~ and government
sources, holds the best potential for domestic dcvclop-
mcnl.
At all domestic sites, P6 A?ts would 6c mined as
byproducts of copper and nickel. According to US
Bureau of Mines estimates, domcai< resources arc
approximately 300 million troy ounces. 22S million oC
which arc contained in the Stillwater Complex. Only
16 million troy ounces of the resources arc considered
pan of the rescn?c base: sigdilicantly higher prices
weuld be needed to'usti(v devclo mcm of the remain-
ing resourccs.~~
 Figure 3
t'latinum Group McUls: \Purid Resents
us.;
eaaada apa mher't
Because PGMs urc Primarily' industri:d commodities
whose use is closely tied to the business cydc.dem;md
x'ill continue to be the key factor driving the PGM
market. The US Bureau of Alines estinmtes that
world PG 41 demand rill grow by :m a+'crage annual
rate of 1.7 percent txenveen 1981 and 2000. according
w current estimates, however. world reserves arc
seven limes larger Ihan cumulative demand over the
{acriod--world ?spurccs arc 20 times lurgcr
The United Smtes and its R'cstcrn allies x?ill continue
to depend on imports from South Africa or the L'SSR.
Rising prices arc exPCCted to spur additional US
production, but, according to the some Bureau of
Mines study, US output is expected to fill less than
3 Percent of the forecast US cumulative demand for
PGMs Mawcen 1981 and 2000. US secondap? sup-
plies will be growing but arc unlikely to close the gap
bd+vccn domestic supply and demand. Japan and the
West Luropcan countries arc nearly 100 percent
South African Supplies
7. How lmporranr are Sourh Alriean PGM supplier
m the United Srnres and its allies?
South African supplies of PGMs are exlremdY impor-
tant to the United States and its allies. For the United
States, approximately two-thirds and one-half of total
platinum and palladium imports, respectively, origi-
nate in South Africa. For Japan, South African metal
represents approximately one-half and one-fifth of
total platinum and palladium imports, respectively.
For West Germany, the figures arc approximately 40
percent and 20 percent of total platinum and palladi-
8. What short-term lorrors might seriously disrupt
Sourh African exports of PGMs?
Strikes by black workers or bombings by the African
National Congress (ANC), in our view, arc the most
likeb? near-term threats to steady PGM exports by
South Africa. 15'c believe, however, that neither
threat is great and that a cutolT of this Irpc would be
The possibilitc o(a strike by platinum mine workers
extensive enough to disrupt exports remains small so
long as many mineworkers arc nonunion. The largest
block miners' union, the National Union of
6. Are serious worldwide skorlager al PGMs likely?
Judging from current production and use trends, they
urc not. World PGM resources arc large compared
with PGM demands. 1VOrld resources are estimated
at 3.3 billion troy ounces; the world reserve bast is 1.2
million troy ounces.' Industry experts predict long-run
growth in PGM consumption but expect total sup-
plies-primary and secondary-to grox? as well: Be-
cause of the cyclical nature of PGM demand and the
long leadtimes required to bring new mints onstream,
nca? world mining capacity is unlikely to keep pace
year to year with demand. However, periodic draw-
downs of producer and dealer stocks and increased use
of recycled PGMs should compensate for most gaps
between primary production and total consumption
' According m lS Burcau of Mines delinilions, resources arc
concentrations of minerals currenth or potentialb~ st alimalc Ihal the executive. the ratio sox Incur. pa lladimn ccen
Sucicts proridc slightly nmrt than 10 percent ul the nwrc-appn,xincuelt ;.::1. :\Ithough none of the
N'est's platinum and more than W Ixrccnt of its doncesticall> cmnuuted pbuinum i. used Gn:mm?
palladium. In rcccm tears, Sneict ntctnl represented mobile cataly&.. and eery lisle gun into ieuelry, in all
approximately _' fx'rccm ul wtnl CS platinum imlxtrts the other imfon:mt induurial scours -gb,eo giber. oil
and approximntdy t0 pcncm ofpalladium impuls. rctining, ;md nitric acid ntnnulauturinY -CUnsuntp-
Japan depends more heacilt on Sm~ict wpplic. -~(or tion is belieecd, by the indus,n cxeanice. m be rising.
approximatdt 15 tx:reent of pl:uinum and oecr 50 Swnc ^nalpsts Iccl that grottlh in palladium demand,
percent of palladium import. N'csl German>. the on the other hand. is Icss robust
other major \1'estcrn cansunmr, acquires over c0
percent of its palladium Irum the Soeicu.0 Part of the reduction in PG\I S:Acx probxbb relates to
price manipulation ;md earnings maximization goals.
According to our estimates. 5m'iet P(i k1 pnduetion Palladium market specialists 6dicn that the Sucicts
has risen slcndily aecr the pall decade--Irum 3,0 have restricted s:dcs to gencrdc higher market prices.
million in 1913 W 4.1 million tro> ounces in 198?. Bt The Soviets may be stoekpiling Platimm~, expecting
the end of the decade. we project that production trill an increase in demand in the next vicar or nrn to
rise to bcUecen 1.5 and S million trot ounces. The stimulate higher prices
Icccl of PG\1 exports w \\'cstcrn 6uccn, howcrcr, has
declined m~cr the period. Between I97? and 1971,
PG \i sales to the United States. Japan, and \1'est
Germany aeeragcd ?.7 million trop ounces; by 1978-
80, average cxiwru to these wurces had dropped to
14. {f'hp pace Sm?ie1 PGhI esDarb AeclineA while
produNion has graven?
Possible explanations for reduced sales of Sorict
platinum group metals include:
? Stepped-up Soviet Bloc stockpiling to deal with
production and dclicer}~ bottlenecks.
? Increased domestic or Soviet Bloc demand.
The Sm?icts may be responding to an
decree ordering enterprises to build rescnvs of nu-
merous materials, including mcials, during the I Ith
Five-Year Plan (198 t-8?). In addition, an industry
executive maintains that unreliable deliveries from
PGM manufacturing plants and poor distribution
channels force Soviet Bloc platinum users generally to
kccp much larger stocks than their \\'eswrn counter-
Consumption of PGMs in 6te Soviet Union also
appears to be rising, wi,h platinum use growing faster
than palladium. For years the ratio of palladium to
platinum exports was similar to the PG\d content of
Soviet arc-25:1. Hmrcec4 according to an industn
lb. Harr the Sm?iels manipulated the PG.M1I marker?
\o. Although the Soviets use carious short-term
mewing comracted sales commitmenu.0
o active campaigns to
1 S, Nbuld the Snrien~ delibrratrly withhold surplus
PG.11 supplierfrum the markrl?
Vo. The need for hard currency and the inability of
the Soviet Gnion, alone, to totally disrupt the ntar-
ket-conditions similar to those limiting disruptive
actions' by South African producers-probably trill
kccp Socict PG hts Bowing to 1Vcstcrn buyers. Ac-
cording to our cstim:ucs, tl,c USSR bas earned
betters 5100 million and SJ00 million annuallc from
PGM sales since 1980. Their current favorable for-
eign exchange position map allow the Soviets to be
more selective in determining both the eolmne and the
timing of PGS1 sales. Floteecer, a complete supply
 Gn the other hand, the Sociu> arc s;tve> nut:ds
tradcn ;md to Io inljuctce the market price of
palladimu. in particuhtr, m m;taimite their rcuun un
capon soles. According to trade wooly sts. exanlplci of
churl-wrm market "mm~ipulution?' :uc: limiting the
:rvailabiliq~ of platinum and palladium on the .pot
market: refusing to increase munthFy allceatiunx of
the metals under long-term contracts: and, for the
past scrcral )can, indicating before nvw contract
negotiations or rcncx~al: Ih:u Icss mcutl would be
available for sale to pressure prices upward.
Collusion Between Major Suppliers
17. /s there any evidence that the Soviets and South
dliicarts hm~e colluded or wiU collude in control/ing
the PG.11 marker?
Ko. Cntil recently, the major South :\frican produc-
ea h:tec supported a stable producer price and admit
to holding down priers to limit the incentive of PG>1
consumers to develop substitutes. fiowcvcr, this "col-
lusion" involved only the South African pralucen. Tu
the best of our knowledge, the Soviets and South
Africans harc octet attempted to form a cartel or
otherwise collude to control the market. Any collusion
to withhold supplies could significantly boost prices
and seriously disrupt the market. However, in our
opinion, any joint action u?euld be aimed at increasing
the profitability of PGM operations and, therefore,
l8. UsupOliesJrom either of the major producers
were curtailed, hoa? would the other supplier react?
If the Soviets halted PGM shipments to the \Vest,
South African producers probably would increase
output until they reached capacity-both the mining
and refining infrastructure are already in place. \\'c
doubt, hosreveq that new mint shafts would be sunk
or that new refineries would be built unless the South
Africans anticipated an extended cutolT and believed
that Sovicl ore would not reach Wcstcrn markets
through third parties. Past expansion plans hinged on
firm contracts from major consumers, and, in this
case, the South African producers would undoubtedly
require assurances that new capital expenditures
could be recovered. PGM companies probably could
tired financing for increasing decdopment either
through private sources or through South Africa's
sophisticated mining-house syatcm that sPCCializes in
Ucni:d ul South :\Irican I'(i\I supplies lu the Coiled
5uucs and its attics is unlikcl) to trigger a .molt al
Soricl ex{xx l>. Instead, we brlirre that the Socicts
would continuo w csf+urt I'G\fs to mkt ads'anlagc of
the higher prices crcued b) a eri>is. In fac6 s:dee
probaby would incre:ue ii there svrrc an eslwrtablc
sugdus.:\ South :\I ric:m disruption would pmbabh
6c short lived. ;utd thv Socicb, knowing this, would
have little time m Iakc advanutge of their rnhanccd
1 Y. 1{'har adjustments n?ould the market make (!
PG.Il supplies were disrupa?d?
A serious and Puamially long-term PG\4supply coo-
oll'would induce carious market and other adjust-
ments aimed to minimize the strategic impact on the
Inrrrased Recycling. The Ievd of PG \f recoccn~ from
secondary sources depends un the primary supply/in-
dustrialdemand imbalance, Prices. and the economic
feasibility of recycling. Currently, recycled material
supplies 40 percent of R'estern PGM needs-primari-
ly tolbrcfincd' metal recovered from nitric acid and
petroleum catalyst Production. An estimated 83 per-
cent of the PGJf catalysts consumed by the chemical
and petroleum refining industries arc recovered,lex~-
clry scrap had represented the largest nonlell sccond?
wry supply source, but discarded catalytic converters
from automobiles arc likely to contribute significantly
to supplies in the future. Since 1973, the automobile
sccor has consumed orcr 6 million troy ounces of
PGhls. 4tore than 80 percent of [his metal is in
operating vehicles and will cvcnlually be arailablc for
rccyding0
The high cost of collecting and transporting scrap is
the major inhibitor of Iargc-scale recycling. However,
as canecncrs arc scrapped in larger numbers and
refining technology is imprm?ed, recovcn' of PGbfs
' In loll relining, scrap m:ucrixl is sem ru a nlinerp-, rchneJ far u
fee, and returned m the originnl oe net xithom any change in
 from automobile com'ertcrs sill btcuntc uuac ett*
nomic: CS ;mtonwbilce were lien Ihmd with
pollution-cumnd decicus in 1975 and 1976 and are
currently nearing the rand of their lilt dclus. As more
countries adopt aulmnubile emi>ion>>tandards, for-
eign supplies will grox' as well. Onc industn anahsl
predicts that hcncccn 35O,IlUO ;cod 5110p(ID troy
ounces of usable PG\Is spill br: remrered from
scrapped aumnwbilc cntaly,u, primarily in the
Cnitcd States. in 1985. Hosrcvcr, br 1990. the volume
could exceed 800.000 troy ounces-more than IU
txrcent of world output-wish European and :\ustrn-
Inrrem'ed Domestic Primap? Prndueriort. According
W mineral press reports, the cunserlimn controlling
the CS Stillwater Complex has almost completed u
mining (casibility study. The future of the project
depends on both the results of that study and on
completion and approval of an cnvironmcntul intpnct
smtemcnt. Thr: consortium is expected to make a
production decision during the first half of 1985. The
Stillwater partners anticipate that it will take pro
pears to bring the orxrntion into production from the
time construction begins. At eapaciq'. annual output
is estimated at ?70,000 trot ounces of palladium and
80.000 troy ounces of platinum-a sizable gain in
domestic production but insignificam in terms of total
world production. hTctal from Stillx'atcncould satisfy
Icss than 10 percent of average 1978.63 US platinum
needs and a roximatcly 20 percent of palladimn
needs. a
Private Srorhpile Releases. There arc widely' dis-
persed private stockpiles of PGMs. The US Bureau of
Mines estimates that by June 19Ra stocks of PG\is
held b>' refiners, importers, and dealers in the United
Slates (including metals in the depositories of the
few York hlcrcantile Exchange ~NYMEX]) stood at
nearly 1.3 million troy ounces-equal to nearly nine
months of domestic usage at the 1987 Icvcl of con-
sumption or six months of consumption al 1979 lcrds.
In addition, there are
sizable stocks in PGM processing and refining plants
in \onvay, the United Kingdom, and Canada. Inecs-
wrs hold metal in bar, bullion, and min. much of it
deposited in Swiss banks, but we know al' no reliable
Y~ahIC 3 In...nrtnJ e..n pump
CS Strategic Stock Pilr-Platinum teacep wh~ Anab'sis, gateau of )tints, U$ Denar~mem of the Inicricr,
September l9g?~~
PG \1?bcaring ore. l'hc phninum price nstwwe is lea
dranlalic. Prices drop to 5'_300 per troy ounce, still
nearly live times their predisruptiun Icccl. Palladium
is incrcasingl. substituted 1'or phninum in respttnsc to
the price decline. In addition, tM l.: aired States
Ixcontcs a small act exporter of palladium. The
cstim:ucd dircet economic cwt of the disruption is
52.3 billion in 1980 dollan, primarily in the fnnn of
transfers to foreigners fur higher priced PG\fs and
the cons associated with domestic production
l'hc study also csamincs the impact of scccral govcrn-
ntcntactions under the same supply disruption: rclcas-
ing nlalcriul from the CS strategic stockpile, rcht.xing
auwnwbile emissions regulations, and esutblishing x
support price for domestically produced PG \1s.:V 1
lox'cr the expected impact of the cutolT. The
stockpile-release option reduces dircet economic costs
the Irtsl, to 52.0 billion, or 13 percent below the
baseline estimate. Relaxing emission regulations is
mart dTcctirc; costs arc caimatcd at S 1 A billion. The
price-guarantee option "cosh' SL5 billion. In all
cases, the impact of the South :\frican culofT, even
one that lasts fice years, is not severe enough to
cripple the US dcfensc structure or US industry.
22. IVhy pre imesrors inreresred in PGhfsT
The investor appeal of platinum and Palladium is
linked to the metals' uses as:
? An inflation hedge during periods ofdepreciating
money ralucs.
? An insurance holding against political and economic
upheaval.
? ,A total portfolio hedge for large and sonhisticated
investors. Platinum prices tend to move countcrcy-
clically to prices of financial assets, thereby' reduc-
ing the risk and variation in the raluc of the total
portfolio.
 ? :\ eprcad partner with goW, :t awn he:n'i1) lrtdcd
prcciuu> metal.'
According to trade anal>xu, PGM prices and im'caur
inlemst tend to more pesilird) wish high in0aliun
rocs, rising gold and ,ih'cr prices. low' real interest
ru an aggrc-
gatc. According to a trading expcn, it is impossible to
detcnninc the actual amount of platinum changing
Thcrc arc about I? major arms playing the PGM
futures mnrkct. Half arc foreign firms ins?olved in
apProtimatcly 55 percent of total futures trading. The
speculator/hedger mix changes. Currently, market
anal)slsestimate that speculators account for 25
percent of futures market activity and hedgers for 75
percent. Hoaves'eq betxceen 1979 and 1981, when
inflation seas high and intcrest in precious metals was
feverish, the pcrccnlagcs were rcvcrscd.~
 25. dre fhe major praduren' nr rnrtmnlrrs ul !'Ci.lfs Figure i
aeries in Ihvlulares marks.' 1'lalinum Prices, 197?-!W'
\o. :\n industry axPCrt repsrts Ihnl neither Ihi major
producers our the major CS I'C;\1 eonsmners arc
^Cli~'e in the futures ntark?L0 rlunarsd anllau rtr tmt ounce
ntarkcC they prefer to work directly' with dc;den, y
Prcrinush' using long-Icon contrncls. now anrking
with frame s:ontracu.' Their lack of cxfxrli,e in g
trading futures may :dsuM inhibiting more actix'c ~
participation. South African producers likewise base a
BYOIdI`d al'llx'C market trnding, bet some of their
mnput is hedged on the Rl'\1EX by Swiss trading s
lirms. Since CS automakcrs had been lucked into a
supply contmcls a?ilh major South African Producers
m stable prices, then had little need to hedge Pur? a
chnscs. According to a fmures mocker cxccutiec, z
however, they sold surplus platinum on the futures
..,.. ?~_. ...~ ..____~.~.. ,. I
26. li'hal has been the major impost al inresror
parliciOatiart in the PGhf marhrl?
According to market exPCrts, perhaps the most impor-
tant inlpaCt of growing im'cstor participation in the
PGM market was the change in the pricing policy of
the largest South African produces Rustenburg. In
January 1984. Rustenburg ubandancd its fixed Pric?
ing policy' and adopted a more flexible standard. For
50 pears. Rustcnburg's customers paid "producer"
prices (or PGMs-that is, rclativeh' stable Priccx
determined by major producers. IThe producer price
for Plminum has been 5473 per troy ounce since
Scptembcr I980J Palladium producer prices hate
changed a little more frequently but are far nwre
stable than either the dealer or exchange prices.` The
'The Sm'icts bare Men shifting two>' from long-term supnb
contracts to monthly"'frame-conuucls. Under the new system.
dcalcrs si?n contracts for optionson giccn monthl> allocations at
prices demrmined by thlucks to iake adv:unagc
ul' higher Price.. crcntu;dly m~xleruing price in-
2N, /ton' nvuld inrranrn mart m art arlual supply'
ruro11.'
Under on actual >uPPly-cutoll'sccnario,PG\I h~ard-
ing probabl> \ruuld inttc;uc. In this instance, buyers
u(phuinum and palladium futures contacts might
force sellcn m deliver the mead instead of accepting
c:uh fur liquidating twsitiuns. This would undoubtedly
set ol! a scramble for mecll and fuel further prier
incrc;ucs. lioacccr. hoarders can only prolit (rant
Price rumps by erentually selling. and in ;m adirc
markcl they risk holding the metal too long. If the
supply cutolT suddenly ended or if significant amounu
of mobile old metal" entered the market their Pruliu
could shrink rapidly. R'c believe that PG.\9 prices
x'ould cnntually reach n Icrc1 where inrestors would
dishuard, and additional ntctal mould bad its way to
fabricators. Stockpile disposals and the availability of
ucandan- supPhw of PG `rls, particularly at the high-
er prices, would rtlicre any IcmPOntn supply crunch.
29. Could someone raccesy{u[ly rarnvrvhe PGA(
marker?
Kot likely. Futures exchanges set limits on daily Price
morcmcnu of platinum and palladium rontracts.
Even \cith the Iesrrage atTorded be margin buying.'"
few ins'ators arc tcealthy enough to bop most of the
world's abuvcgrcund platinum and palladium sup-
plies. htoreocer, in the United Slates, the Commod-
ities Futures Trading Commission (CFTCI regulates
thciutures ntarkct. bt an emergency. the CFTC weld
force the exchanges to halt trading altogether or to
restrict the volume of speculation and to diminish its
',lfuhile olJ uu?ful-sometimes called abmvRrovnJ narnrt--ic
arailablg (or salt or rec. ding. siren the right peire. In the sikcr
market. caamples of mnhilr n1J corm! arc silacr Oaxarc, coins,
and jordp. N'hcn sikcr prices roc rapidb dwing 19]9/ao, these
itcmx rccmcrcd the mnrkct in dramatic numhrs.0
":\II margins arc rdalirdy snmll in proportion to the loml r;dur of
the cunvaei. The current margin rcyuircment for the \1'\1IiX
platinum contract is 7 perccnl.:\ speculator. thea(orc. can "buy"
one aanvact-or 50 trot Donets. xorth 519.nnn ales platinum price
of S?NO per tm. ounce-b}' putting up a margin of $1.1aq~