Platinum prices will still take some time to peak
Johannesburg (June 6) At some stage, the South African platinum strike will end – probably sooner rather than later now government mediation is putting pressure on both sides to settle. The strike impact on the South African economy is significant. Global industry users of platinum group metals will, no doubt, breathe a sigh of relief and platinum group metal prices may fall back a little on the news when it comes. But the strange thing is that platinum prices haven’t moved up at all due to the strike, despite the large percentage of global output affected. Indeed the metal’s price is currently some $20 an ounce lower than it was at the start of the strike back in late January!
South Africa produces around 70% of the world’s platinum but some mines are still producing, although the strikes have primarily affected mines in the Rustenburg area belonging to the world’s top three platinum miners, Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin. It is estimated, though, that only around 60% of South Africa’s platinum production has been impacted. Even so the amount of platinum production lost is very significant. But, it is also known that the South African miners had been building up stocks in anticipation of a lengthy period of labour disruptions, while there have also been estimated to be perhaps up to 3 million ounces of platinum held in ETFs and strategic stockpiles worldwide which means that industrial users have still been able to obtain supplies without any real shortages occurring. Indeed the world’s largest producer, Amplats, has gone on record to say that it has been able to maintain its global contracted deliveries from production at its mines which have not been closed due to the strikes (around 40% of its production) plus stockpiled platinum, although it is believed its stockpiled material is pretty well exhausted after 19 weeks of strike action.
Overall, it is estimated that over 1 million ounces of platinum production (about 17% of global mine supply) has been lost in the strikes and Johnson Matthey estimates that there will be a global shortfall of perhaps 1.22 million ounces in supply this year compared with demand (but these figures were based on the assumption that the strike would end in April so the projection should perhaps include another 250,000 ounces or so and be more like 1.5 million ounces). This is in the face of rising global demand as automobile sales are rising in China and the world’s main economies. While there seems to be little or no pressure on supplies so far, as the deficit does start to impact the market then one can expect prices to start to rise.
The principal Union behind the platinum strikes, AMCU, has so far remained intransigent on its demands. "The 12,500 rand ($1,200) is still non-negotiable. AMCU members are steadfast and we are not turning back," Joseph Mathunjwa, the President of AMCU is reported as telling Reuters yesterday and so far the Union has rejected the new South African Mines Minister’s mediation attempts. The producing companies are also holding firm saying they just cannot afford to meet AMCU’s wage demands without significant labour cuts and mine closures, but it is looking increasingly likely that these will happen regardless unless there is a big boost in the platinum price.