Research analysts David Davis and Johan Bruwer of Credit Suisse Standard Securities released a report that said the South African platinum mining industry was expanding "too rapidly", making it "highly likely" that platinum and rhodium would go into "significant oversupply" in the medium to long term, and negatively impacting prices.
Davis and Bruwer identified the oversupply driving forces as projected growth of South African mines, lower global vehicle production and increased autocatalyst recycling.
The analysts estimate that South Africa will produce 5.9 million ounces of platinum by 2010. Then continue increasing to 6.4 million ounces by 2012 and 7.6 million ounces by 2015.
Their forecast took into account expected production from an additional 19 projects that were due to be commissioned in South Africa between 2008 and 2015, as well as power-shortage and project-delay constraints.
The 90-page study that the implications of surpluses "could not be over emphasised", as they would "undoubtedly" lower prices, company margins, cash flows and earnings.
The 2010-to-2014 platinum oversupply would lop 30% off the platinum price and 2009-2011 rhodium oversupply halve the rhodium price.
They expected the platinum price to drop to between $1,200/oz and $2,000/oz and the rhodium price to between $4,600/oz and $8,000/oz.
A significant 2010-2014 platinum-rhodium price downturn would "shock" the industry, they warned, slashing industry earnings by between 40% and 90% by 2012.
If mining inflation were not checked, the impact of lower prices would be compounded.
They expected 20%-to-25% 2008 cost increases compared to 18% in 2007.
The investment case for the South African platinum industry would, however, remain strong in the immediate term, their calculations showing both platinum and rhodium in short-term deficit.
The 2008 platinum deficit would be 600,000 oz and 2008 rhodium deficit 80,000 oz, putting upward short-term pressure on prices.
The short-term deficits were attributed to a continued lack of short-term supply from the South African platinum mining industry.