Rising platinum prices to benefit SA's fiscal plans - Old Mutual

Image credit: Reuters

The government, led by the African National Congress and the Democratic Alliance, is attempting to balance competing interests across parties, and political analysts say that painful trade-offs, such as higher taxes or spending cuts, could fracture the coalition.

South Africa is, however, the world's largest producer of platinum group metals - including palladium and other precious metals as well as platinum - that have rallied this year, meaning increased mining royalties could provide relief for the government ahead of its mid-term budget.

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"Given the role that PGMs play in revenue collection ... this could be a bit of a gift horse windfall to the government of national unity," Meryl Pick, portfolio manager at Old Mutual Investment Group, said during a briefing.

She said a repeat was possible of South Africa's mining tax windfall in 2021 when revenue collections exceeded budget projections by R100bn, helping to narrow the fiscal deficit.

Spot platinum prices touched their highest levels since August 2014 earlier this month, extending a record second-quarter rally fueled by a rise in demand and drop in supply.

Some analysts have said the rally might not be sustained, given global economic uncertainty that may affect demand.

But Old Mutual Investment Group analysts said prices were likely to keep rising on the basis of slower adoption of electric vehicles in Western markets, steady demand for hybrid cars, and constrained mining supply due to years of underinvestment.

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One of the major uses for platinum and palladium is to curb emissions from vehicles that run on fossil fuels.

Old Mutual has more than R400bn of assets under management, and its funds have a significant allocation to resources and mining shares.

The commodity rally has also buoyed South Africa’s other markets. South Africa's MSCI index is up more than 32% since the start of the year - double the around 16% gain in the wider MSCI EM index.