Platinum, Palladium May Continue Surge Despite End of Mining Strike

August 2, 2014

Johnnesburg-S.A. (Aug 2)  The end of the longest mining strike in South Africa’s history may do more to lift the prices of platinum and palladium than the strike itself, analysts at Bank of America Merrill Lynch said.

The five-month long strike took a bite out of South Africa’s economy and cost mining companies some $2 billion. It also boosted platinum prices to eight-month highs and palladium to the highest in more than thirteen years.

Now that the strike is over, prices for the metals are rallying further.

On Tuesday, platinum rose to $1,506.80 a troy ounce, its highest level in nearly 10 months, while palladium prices were trading at $852.80 an ounce,  about $8 away from a new 13-year high. South Africa is the world’s largest producer of platinum and its second-largest palladium producer. The two metals are mainly used in automobile-exhaust filters.

One big reason for the rally, analysts say, is that mining companies no longer have an incentive to keep prices from rising. Soaring prices would have been an advantage to workers, who could argue that companies were making plenty of money on the more expensive metals and were therefore in a better position to meet union demands.

With the strike’s end, “this cap on rallies has been removed,” BofA Merrill Lynch analysts said in a note to clients.

Analysts also believe it will be several months before the restarted production begins approaching pre-strike levels, keeping supplies of the metals tight and prices elevated. The losses incurred during the strikes may also force miners to reduce their capacities.

On the demand side, analysts point to surging auto sales in the U.S., China and the European Union. At the same time, authorities around the world have been tightening emission standards, a move that is likely to keep prices buoyed, BoFA says.

The bank currently has a year-end target of $790 an ounce on palladium and $1,551 an ounce on platinum, although the analysts said those numbers will likely be revised higher.


Source: Bloomberg

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