PROPOSED SUPPORT FOR
THE BENEFICIATION OF
PLATINUM GROUP METALS
(PGMS) AND CHROMIUM IN
THE CATALYTIC CONVERTER
INDUSTRY
August 2014
1
1
EXECUTIVE SUMMARY
INDUSTRY SUMMARY
•
•
•
•
•
The catalytic converter industry is one of
the success stories of SA industrial policy,
being one of the very few complex
manufactured products to reach global
significance.
It grew to some 15% of the global market
by 2006…… but it could have (and should
have), grown so much more.
The industry was drawn to SA by the
Motor Industry Development Program
(MIDP) which, although providing
extremely attractive incentives at the
start, declined over time and became self
limiting, as it relied on the credits
obtained from exports to offset imports of
vehicles and components.
Global OEMs source their business based
largely on the “country incentives” on
offer to them in order to offset any
dislocation costs and risks.
this takes no cognizance of South Africa’s
dominant position regarding PGM
reserves or current and future production.
INDUSTRY OUTLOOK
•
This is the largest automotive component export industry in SA –
10% global market share, R16 bn p/a export sales, employing
5,000 direct and 20,000 indirect workers.
•
The industry is however under threat and in decline – current
incentives (APDP) are declining to levels which no longer cover
distance to market costs and risk factors. Recent labour unrest is
undermining investor confidence in South Africa.
•
The APDP, due to the constraints on the duty pool, cannot afford
to provide any further increased incentives to grow the industry.
•
The key inputs are platinum group metals (PGMs) and stainless
steel (chrome) – both are resources where SA has > 70% of global
raw material reserves and currently supplies close to 50% of
global demand, but mostly in an un-beneficiated state.
•
If we do nothing, this industry will continue to slowly die – we will
lose 25,000 jobs (mainly in Eastern Cape), exports will decline by
R16bn per annum.
•
Using the provisions of the Beneficiation Act we can potentially
grow this industry to 30% - 40% of global market by 2022/24 – this
could generate export revenues of R90bn per annum and 100,000
skilled jobs and could also support the development of new
industries such as fuel cell technology.
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ACKNOWLEDGEMENTS
This presentation has been compiled by the
CCIG using the following:
• The PWC study into the catalytic converter value chain
in SA – 2011
• The PWC Global Automotive report - 2013
• The Economic study was done by Henk Langenhoven –
Chief Economist at SEIFSA
• The Kaizer Report - 2007
• The Johnson Matthey annual platinum industry survey
– 2013
• Input from various industry sources
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TABLE OF CONTENTS
• Overview of the Current Catalytic Converter Industry
• Beneficiation Proposal
• Impact of the Proposed Strategy
• Conclusion
4
HISTORIC AND PROJECTED VOLUMES AND
INCENTIVE LEVELS FOR CATALYTIC CONVERTER
EXPORTS
20
18
16
Incentive level (%)**
14
Converter Volume (millions)
12
10
8
6
4
2
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Volume Projection
** Based on current legislation
Magnetti
Marelli Closes
Cummins
to Close
3rd Canner to
Potentially Close
5
ESTIMATED PRODUCTION LEVELS vs CAPACITY FOR
ALL SA PLANTS AT CURRENT APDP
100
90
Production % of capacity
80
70
Canners
60
Coaters
50
Based on
current APDP
40
30
20
10
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
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INCENTIVES AND THE COST OF EXPORTING FROM
SOUTH AFRICA
9
MIDP
APDP
% OF SALES PRICE
8
7
+RISK – ESTIMATED @ 2%
6
ESTIMATED AVERAGE VALUE OF SOUTH
AFRICA LOCATION COST
DISADVANTAGE (PWC report)
5
4
DUTY REBATE AS % OF SELLING PRICE
– CURRENT LEGISLATION
3
2
1
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Indications are that the global OEM customers would expect to see about a 10%
discount (below competitive landed cost) to place volume business in South Africa
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TABLE OF CONTENTS
• Overview of the Current Catalytic Converter Industry
• Beneficiation Proposal
• Impact of the Proposed Strategy
• Conclusion
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COUNTRY SPECIFIC ACTIONS TO OPTIMISE
LOCAL RESOURCES
1.
About forty years ago, the Arab oil producing countries, which then controlled
less than 50% of the world’s output, overnight increased the price of oil from 6
US $ per barrel to US 24 $.
2. In 1999 Russia introduced an export tax on Precious Metals of 5% (currently 6.5%)
– the trigger was the beneficiation of their PGM resources.
3. About three years ago, China imposed export quotas and export taxes of between
15% and 25% on rare earth minerals , which have resulted in substantial global
price increases.
4. Recently, the Indonesian government blocked the export of nickel containing ores,
which has caused a significant increase in the global nickel price.
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SOUTH AFRICA’S GLOBAL ADVANTAGE
• South Africa’s has some 70% of global Platinum Group Metals
reserves, the balance is mainly shared between Russia and
Zimbabwe. Thus, our country and its neighbor have a
significant dominance of the world’s reserves of PGMs.
• The demand for platinum is expected to grow with the global
expansion of vehicle production and the rapidly increasing
need for cleaner air, especially in emerging economies.
Controlling the dominant source of PGM with a growing worldwide demand, South Africa has a golden opportunity to
impose a local beneficiation strategy.
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GLOBAL AUTO PRODUCTION
Total
Accessible *
2013 (million)
2020 (million)
83
118
56 (100m cats)
77 (150m cats)
Notes
* Excludes Far East
2 cats/car average
GLOBAL PGM PRODUCTION (2013)
Platinum (M oz)
Palladium (M oz)
Rhodium (M oz)
Global PGM supply
7.84
8.89
0.99
SA as % of total PGM
production
52.5
26.4
57.6
GLOBAL PGM USAGE (2013)
Platinum (M oz)
Palladium (M oz)
Rhodium (M oz)
Global PGM use
8.42
9.63
1.0
Catalysts as % of Total
PGM usage
37.1
72.4
80.0
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SOUTH AFRICA PGM USAGE
Mine
Production
(M oz)
Autocatalyst
Beneficiation of
PGMs (M oz)
Catalysts as %
of SA Mine
Production
SA catalysts as
% of World
Market
Platinum
4.12
0.42
10.2
13.46
Palladium
2.35
0.39
16.6
8.59
Rhodium
0.57
0.039
6.8
4.87
VALUE (R bn)
87.7
9.95
11.3%
+/- 10%
Autocatalyst manufacturing is the only
significant industry beneficiating PGMs in
South Africa
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PROPOSED MEASURES FOR LOCAL
BENEFICIATION PROGRAMME
•
The Mineral and Petroleum Resources Development Act Draft Amendment Bill, is
yet to be signed into law.
•
“In its proposed new format, the clause now empowers the Minister to designate
'any mineral or mineral product' for local beneficiation - having consulted with the
Ministers of other relevant national departments and having also considered
'national developmental imperatives such as macro-economic stability, energy
security, industrialisation, food security and infrastructure development'. As
mooted at the last meeting, the clause also enables the Minister to prescribe the
percentage of mineral or mineral product to be offered to local beneficiators
at the mine gate price or at an agreed price - as well as the quantities, qualities
and timelines entailed. It is proposed that the Minister's written approval should
be obtained before a designated mineral or mineral product is exported”.
•
At this point, we have no clear picture of how this will be interpreted or
implemented…… or what is the meaning of “at an agreed price”.
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PROPOSED MEASURES FOR A LOCAL
BENEFICIATION PROGRAMME
• This proposal will support all beneficiators and beneficiation
projects utilising Platinum Group Metals. It could also be
expanded to include the beneficiation of SA mined Chromium
Ores.
• At the same time, the proposal addresses the need to
support the catalytic converter industry outside the
Automotive Production & Development Program (APDP).
• The provisions of the Act should be applied, ensuring a
portion of local production to be allocated for local
beneficiation at an agreed discount to global prices, possibly
linked to the degree of beneficiation occurring in the
individual processes. This program could be funded through
a Government tax program.
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3 POSSIBLE OPTIONS
OPTION 1: Stay
Under Current APDP
OPTION 2: Stay in APDP, With
Some Beneficiation Support
OPTION 3: Out of APDP – Total
Support from Beneficiation
Pro’s
•No new support
measures needed
• Vulnerable Industry
incentives need to be
maintained at current
levels
•Some additional support from
Beneficiation of PGM’s & Chrome Ore
•OEMs continue to drive business
•Slightly slower decline of business
• Vulnerable industry incentives need
to be maintained at current levels
•Industry can grow without restriction
to position of global leadership – 5 x
existing?
•The need for local OEMs to use the
converter industry to generate APDP
rebates will no longer be the main
driver of this industry
•Massive increase in jobs, skills
growth, export revenues and boost in
technology
•Platform for future PGM industries
•Additional localization of automotive
components to support OEMs’ needs
for rebates within APDP
Con’s
•Industry will continue
to decline and die
•There will come a
time when major
players will dis-invest
from SA
•Loss of jobs
•Loss of technology
•Impact on Balance of
Payments
•Local beneficiation
opportunity lost
•APDP will cap expansion of industry
•When OEMs become “duty neutral”
they will cease to place business here,
and the industry will eventually die
•Loss of jobs
•Loss of technology
•Impact on Balance of Payments
•Minimal local beneficiation
•Substantial Beneficiation support
needed
•Possible negative reaction from other
industry groups
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THE OPPORTUNITY
• SA currently produces about 10% of global catalytic
converters, worth R16bn in export revenues, and
beneficiating 11.3% of local PGM production.
• SA possesses some 70% of global PGM and chromium
reserves.
• The “accessible” global passenger car market is estimated to
grow from about 50 million cars today to +/- 80 million in
2022 – an anticipated growth of some 60%.
• We could initially target to grow our share of the autocatalyst
market to (say) 30% - this would require us to produce some
50 million catalysts/annum – a growth to some 5 times
current production, which could consume 50% of the current
SA PGM output.
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TABLE OF CONTENTS
• Overview of the Current Catalytic Converter Industry
• Beneficiation Proposal
• Impact of the Proposed Strategy
• Conclusion
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OUR PROPOSAL
• To achieve global leadership in this industry these factors
need to be considered:
1.
2.
3.
4.
The industry would have to come out of the APDP. At the levels
envisaged for this industry, the APDP Duty pool would be swamped.
This proposal would ensure the viability of the industry if and when the
local OEMs no longer need catalytic converter exports to fund their
duty credit requirements
The quantum of the incentive needed will be such that the price of a
catalytic converter from SA would be cheaper than from the rest of the
world – we suggest 10% less at the customer gate. This would cause
sourcing decisions (both by the OEMs and the converter industry) to be
made purely on price, and not on PRCC requirements.
This incentive could be achieved through a variety of Government
actions, such as a production tax on PGMs and chrome, export taxes, a
beneficiation subsidy, transport cost subsidies, a direct grant from the
Fiscus, etc.
The industry should possibly be included in the Government’s new SEZ
program, thereby assisting with tax rates, labour issues, input costs,
export logistics, etc.
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STEPPED APPROACH TO THE BENEFICIATION
PROPOSAL
The CCIG proposes that this beneficiation proposal should initially operate in
conjunction with current incentives applicable to the automotive industry,
until such time as the Beneficiation Incentive is fully functioning:
1.
2.
The AIS as an investment incentive
The APDP-PI as a manufacturing incentive
NOTE: Catalytic converters remain a legitimate automotive component,
and should continue to receive investment support through the AIS (or
similar program) even after Beneficiation Incentives become applicable .
The introduction of a developmental pricing program for PGM’s will provide
a compelling reason for the global automotive industry to source more
catalytic converters from SA, without the constraints imposed by the APDP.
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IMPACT OF THIS BENEFICIATION PROPOSAL
•
•
Catalytic converters are the major, but not the only, use of PGMs in SA.
The right incentive levels will attract other beneficiators and PGM fabricators to
South Africa.
•
•
•
Various stages of
beneficiation
The PGM value chain (Kaiser Study, May
2007, left) highlights current and future
opportunities in this area
Employment in the South African
catalytic converter industry could
increase to some 80,000 direct and
indirect jobs, and we would additionally
expect substantial highly skilled jobs to
result from these new industries.
Other value additions within the
catalytic converter industry could be
considered as they would have no
impact on the APDP duty pool.
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THE POTENTIAL IMPACT OF GROWTH ON EMPLOYMENT
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ADDITIONAL IMPACT ON AUTO PARTS INDUSTRY
• The OEMs will need to find replacement business for
+/- R16bn currently generated by catalytic converters for
APDP credits.
– New output of some R 16 billion will have to be generated and
exported,
– Value Added to the economy by such an industry will be in the order
of R 4 billion
– Employment generated will be over 32 000 people, and
– Investment of some R 4 billion will be required
• Columbus will supply an additional +/- 80,000 tons/annum of
stainless steel into this industry.
• Higher volumes of pressed parts & other components should
drive the industry to more competitive levels and generate
exports of exhaust components and systems.
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ECONOMIC SUMMARY
2014
2022
13million (10% of global
market)
43million (30% of new,
available global market)
Turnover
R16bn
R70bn
Value Add
R3.1bn
R10.6bn
Number of catalytic
converters
Capex Required
R12bn
Direct Employment
6,500
19,550
Indirect Employment
19,696
59,000
Salaries & Wages
R2.3bn
R6.9bn
Taxes
R2.1bn
R8.06bn
Possible Naacam Jobs
Possible Naacam Value Add
32,000
R4bn
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A POSSIBLE FUNDING MODEL TO ACHIEVE THIS
• Russia currently applies a 6.5% tax on exports of un-beneficiated PGMs.
This did not disrupt the market unduly.
A possible example:
• SA could levy a 5% tax on all PGMs mined in SA, and use this to reduce the
cost of PGMs purchased for local beneficiation.
• The tax would be applied to all PGMs mined, so would not be an export tax
(therefore WTO compliant) and would go to the Fiscus.
• Revenue from this could fund a “Beneficiation Incentive Scheme” to reduce
the cost of PGMs used to manufacture value added products in SA.
• The cost reduction incentive would be on all beneficiated products
(not only exports), so would be WTO compliant , and could be claimed on the
invoice of the final product.
• This tax could be used to drive volume manufacture of all beneficiated
products, including catalytic converters, as well as R&D into other uses of
PGMs, such as fuel cells.
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A POSSIBLE FUNDING MODEL TO ACHIEVE THIS
•
•
As an example, for 2015:
• Assume catalytic converters are 10% cheaper, delivered from SA
• With a 5% logistics penalty, this then requires a 15% price discount
• As PGMs comprise +/- 50% of the cost of a typical converter, PGM used for
local beneficiation should be rebated to “global price less 30%”, on sale of the
beneficiated product
• A 5% production tax would generate R4.5bn at today’s mined volumes
• A 30% discount for PGMs currently used in the industry = R2.95bn
• Therefore it will generate a surplus of R1.55bn to the SA Fiscus
Assume, by 2022:
• The SA PGM mining industry grows at 10% pa – revenue will grow from R90bn
to R190bn and the 5% tax would generate R9.5bn pa
• The SA catalytic converter industry grows to 30% of available global demand
and produces 43 million units/annum. Rebate = R9bn pa
• This is still a surplus of R0.5bn, but now with extra value addition of R11.5bn
to the economy and additional tax revenue of R4.6bn
WIN-WIN SCENARIO
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A POSSIBLE FUNDING MODEL TO ACHIEVE THIS
SA PGM Mines
(70%global reserves)
Exports 89%
Export prices
should rise with
production tax
R2.95bn
beneficiation
rebate, paid on
sale of product
Local 11%
5%
production
tax
R4.5bn to
Fiscus
Growth of SA Converter
industry to 30% of new
global market
Local Converter
industry
(currently 10% of
global market)
Growth of new
industries, R&D,
etc
Incentives
Balance of
R1.5bn to
Fiscus
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TABLE OF CONTENTS
• Overview of the Current Catalytic Converter Industry
• Beneficiation Proposal
• Impact of the Proposed Strategy
• Conclusion
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CONCLUSION
This proposal will :
– Generate some 75,000 new jobs
– Generate R15 bn /annum in value add to the SA
economy
– Produce tax revenue of about R10 bn/annum,
excluding benefits derived from new industries
– Provide a stimulus to new PGM industries such as
fuel cells
– Generate other value additions within the
catalytic converter industry, such as exhaust
components and exhaust systems.
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THANK YOU FOR
YOUR ATTENTION
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Issues raised and potential responses
Following the presentation about our project at the MIDC, several negative views have been
received, specifically that the platinum mines cannot afford to give a discount to the local
catalytic industry; and their shaky profitability will be further negatively impacted;
SPECIFIC POINTS NOTED:
1. The investors in platinum stocks will sell their reserves, in order to make a quick profit,
and thus flood the market, causing a reduction in prices, a reduction in production, etc.
Possible; but this will be a short term problem.
2. Concerning the jewellery market; as PGM will be more expensive, people will buy more
gold, silver, titanium jewellery, causing a drop in demand for platinum.
The extra premium is 5% on metal, which will have a 1% or 2% effect on the price of
finished jewellery. Platinum is already a premium product.
3. People will be more incentivized to recover platinum from old converters, causing a drop
in demand for newly mined platinum.
This is already happening anyway – will 5% make a difference?
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4. It is unfair to subsidize the catalytic converter industry at the expense of the mining
sector.
Agree. But where is the value add occurring? And what are the mines contributing to
the real value of our PGM resources?
5. The prices of cars will increase, leading to less demand for cars.
We can’t see it happening on a cost increase of $2.50 per car
(cat costs +/- R1000/unit = $100, of which PGM is 50%. 5% of $50 = $2.50)
6. Subsidies hide inefficiencies; the catalytic converter industry should focus on being
more efficient instead of asking for more subsidies .
The cat industry is cost competitive – but the industry cannot overcome geography.
7. There will be more Research & Development to find substitutes for PGMs in catalytic
converters .
This is happening anyway. Will a $2.50 increase change this significantly?
8. OEMs are reluctant to put all their eggs in one basket by getting their catalytic
converters to be manufactured in South Africa, which is renowned for its labour
instability environment.
The South African industry only needs to get them to put 1/3 of their eggs into our
basket – that is why we need the 10% discount.
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