Platinum and palladium prices saw weak 2015
According to Stillwater Mining (SWC) management, the platinum market was oversupplied in 2015. South African miners achieved the highest level of production since 2011, as they had to realize revenues despite production coming from many loss-making areas. This saw prices decline by 28% YoY (year-over-year) in 2015.
Palladium, on the other hand, was impacted by the Chinese slowdown, negative investment demand, and stabilization in South African production in 2015. This saw palladium prices declining by 30.5% YoY to end at $555 per ounce.
More positives on palladium than platinum
For 2016, Stillwater Mining management believes that primary production should be relatively flat compared to 2015. But secondary production could increase as stockpiling increased during 2015 due to weak PGM (platinum group metals) and steel prices.
On the demand side, Stillwater is relatively optimistic about automotive demand. But it believes that uncertainty exists in the following:
- tighter credit control for new car owners in the United States (QQQ)
- impact of diesel emissions scandal led by Volkswagen (VLKAY)
- direction of investment flows
- direction of the world (ACWI) economy
Management believes that underlying industrial demand for palladium remains strong with structural deficits in the palladium market. Overall, management is more positive on palladium than platinum. The positive outlook on palladium could support companies such as Stillwater Mining and Norilsk Nickel (NILSY), which produce mainly palladium.
Impact on company performance
Since the majority of Stillwater Mining’s production and revenues comes from palladium (PALL), its performance is tied to the price of palladium and, to a lesser extent, platinum. The company mentioned that a 1% change in the company’s average realized price for palladium and platinum would result in a change of $36.1 million in net income before tax and $3.8 million in cash flows from operations.