South African platinum mining shares dropped to their lowest in more than three years as the metal erased most of this year’s gains, weighing on companies’ potential profitability.
The FTSE/JSE Africa Platinum Mining Index fell 3.7 percent to 50.97 by the close in Johannesburg, its lowest level since March 2009. Lonmin Plc, the third-largest platinum producer, slid 5.1 percent to the weakest since December 2008. Impala Platinum Holdings Ltd. retreated 3.9 percent.
Platinum declined 1.9 percent to the lowest since Jan. 6, as commodities dropped for a second day on concern that Greece may leave the euro region, roiling financial markets and dimming the outlook for raw materials demand from China, the biggest user of industrial metals including copper. Companies require a higher platinum price and lower costs to make a profit, John Meyer, an analyst at Fairfax IS Plc, said by phone from London.
“There is a lot of conflicting data out of China and Europe and many funds and traders have taken a risk-off attitude recently and so platinum prices are going down,” Meyer said. “I think these shares can carry on down unless there is radical change in terms of production costs or pricing.”
A 9.9 percent decline in the average platinum price and an 11 percent rise in rand costs contributed to an unexpected loss for the six months through March at Lonmin, the company said on May 14. Anglo American Platinum Ltd., the biggest producer, cut its 2012 output target in February and froze employment after annual profit slid 30 percent. Competitor Aquarius Platinum Ltd. said last month it missed quarterly earnings estimates amid lower prices and higher output costs.
“The current operating environment in South Africa is not sustainable, in our view” for platinum producers, Bank of America Merrill Lynch said in a report e-mailed yesterday.