Platinum Price Posed For Big Rise If South African Strike Talks Fail Again

June 8, 2014

Johannesburg-S.A. (June 8)  Investors with a taste for precious metals will be watching the platinum market closely next week because if last ditch talks to end a five-month long strike by workers in South Africa’s all-important platinum mining industry are not successful the price of the metal could rise sharply.

That platinum has not reacted positively to the strike by 70,000 mine workers is one of the more interesting aspects of an event which has affected an estimated 40% of the world’s supply of platinum, a metal which plays an essential role in controlling noxious emissions from vehicle engines, as well having a market in the jewelry industry.

Normally, any commodity which has almost half of its supply effectively removed from the market, would enjoy a strong price response. That has not been the case with platinum, yet.

Worker, Management Stand-Off

There have been short-lived price spikes since the strike started over a claim by mine workers for a near tripling of entry level wages to around $1180 a month by the year 2017, and a mining company response which was a fraction of the claim.

On Friday, the platinum price rose by $24 an ounce to $1453/oz, which is about where it was when workers walked off the job.

The lack of a market response to the mothballing of mines operated by Anglo American  Platinum, Lonmin and Impala Platinum is a result of the market being satisfied by stockpiled material, but as the stockpiles dwindle pressure will grow on the platinum price as it has on the South African economy.

Shrinking Economy
In the first three months of the year South Africa’s economy, as measured by gross domestic product, shrank by 0.6% with overall mining output suffering its steepest fall since 1967 with the loss of platinum exports matched by lower prices for coal, gold and iron ore.

Both sides in the platinum dispute have been hardening their positions.

Unionized workers, already infuriated by the deaths of 34 strikers during a stand-off at the Marikana mine in August, 2012 say they will not give in. Management echoes that sentiment.

“The Fight We Had To Have”

In London last week Mark Cutifani, chief executive of Anglo American, the parent company of  Anglo American Platinum, described the current strike as “a fight we had to have”.

Speaking at a mining club dinner at Lord’s cricket ground, Australian-born Cutifani, said: “What’s being asked of us is unsustainable. The productivity in the platinum sector is one-tenth the productivity in the Australian mining sector and we are paying one-fifth of the wages.”

Attempts by the South African government to broker a deal are reported to have made progress with a showdown meeting set for Monday.

But, If those talks fail the matter will pass to a labor court with no set timetable for an arbitrated decision and no guarantee that any court order would be enforceable.

It is possible that the platinum market will continue to ignore the effects of the South African strike, but it it more likely that the threat of a long-term shut-down of the country’s mines will finally trigger an overdue market response.

Source: Forbes

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