GFMS, a leading precious metals consultancy, has released its sixth annual report on the world’s platinum and palladium markets – Platinum & Palladium Survey 2009. GFMS noted in the report that global mine supply of both platinum and palladium in 2008 registered steep declines in output, of 7% and 10% respectively. For platinum, much of the fall was ascribed to South Africa’s 8% drop, where production was affected by, among other factors, the country’s energy problems and serious flooding and subsequent temporary closure of the Amandelbult mine. A near 10% drop in output from Russia, led by disappointing production from its largest producer Norilsk Nickel, compounded the annual decline. Increases in supply from Canada and Zimbabwe, however, of 11% and 6% respectively, served to offset these losses somewhat.

The survey details how the onus of the 10% drop in palladium production fell in broadly equal measure on Russia and South Africa. In Russia, which generated over 40% of the world’s palladium output in 2008, a decline in output of just over 10% was due to a number of factors. These included extreme weather and plant maintenance downtime at Norilsk’s properties. South African production fell by 12%, hampered by losses at some of the country’s biggest mines, notably Impala. Canadian supply was severely affected by the collapse in prices which led to the closure of the country’s leading palladium mine, Lac des Iles, in October.

GFMS reported that in 2008 platinum miners’ total cash costs (on a platinum equivalent basis) expanded by a little over 30% in US dollar terms. The report’s cost analysis is based on a platinum equivalent ounce basis in order to facilitate a like-for-like comparison between operations. Cost increases were primarily attributed to the industry’s high proportion of fixed costs coupled with lower metal production.

Turning to the 2009 outlook for platinum and palladium mine supply, GFMS’ Senior Consultant, Peter Ryan noted that a broadly neutral outcome is expected in South Africa this year for platinum. Losses originating from the closure or downsizing of operations in recent months are expected to prevail, although these should be largely mitigated by a handful of greenfield project starts and in select cases a return to more normal operations following non-recurring events last year. The consultancy’s view for other regions is broadly negative. Declines are expected in Russia, USA and in Canada where the closure of Lac des Iles and, to a lesser extent, the temporary suspension of Vale Inco’s operations in Sudbury will create a meaningful shortfall. GFMS pointed out that in all three cases this will have a more pronounced impact on palladium supply.