Platinum price volatility looming

May 18, 2014

Johannesburg-S.A. (May 18)  Stockpiling, recycling and long production times have prevented a prolonged South African platinum strike from causing a spike in global prices, but analysts say volatility is coming, with consequences for the auto industry and other sectors.

Since January, three of the largest producers in the world have suffered a hobbling strike on South Africa’s restive platinum belt, north of Johannesburg.

The world’s third largest producer, Lonmin, has been the worst affected, with a 43 per cent drop in production.

But price rises for the precious metal have been muted, up just 6 per cent since 80,000 miners downed tools at Anglo American Platinum, Impala Platinum and Lonmin.

Commodity analysts say that is thanks to ore stockpiling, production lead times and sourcing from other producers.

But according to Goolam Ballim, an analyst at Standard Bank Group, the respite may be over if the strike does not end soon.

“We are drawing closer to the risk of price volatility if the strike drags on,” Ballim told AFP.

South Africa accounts for 80 per cent of the world’s platinum supply and nearly a third of the world’s palladium.

None of the three companies will reveal the size of their stockpiles but according to commodities analyst Paul Miller, platinum companies usually have four-months’ worth of stock in the smelting and refining pipeline as well as additional production stockpiles.

“There actually hasn’t been any actual physical reduction in supply yet,” he said Miller who is with Nedbank Capital.

“The movement of platinum prices is complex,” he said.

He added that industrial users have also been cushioned by recycled metal, which finds its way back to the market, minimising the impact on demand.

In 2013, the amount of platinum from recycling was 2.1 million ounces, up from 645,000 ounces in 2003, according to the industry.

But even if the strike was to be called off, and workers return to work, it could take up to six months for companies to ramp up production levels and replenish stocks.

Based on 2013 data by the country’s top three platinum mining companies, each day approximately 9,998 platinum ounces, worth about 198 million rand ($19.2 million; Dh70 million) could be lost in 2014.

A latest bid by Lonmin to break the strike failed, after workers failed to heed a call to return to work on Wednesday, amid renewed violence.

Workers have rejected a basic monthly salary package of 12,500 rand ($1,200, €860) by July 2017, saying they want that figure to take effect immediately.

Any sustained increase in the platinum price could have far-reaching impact for motor manufacturers who use the metal in catalytic converters.

Already there is some murmurings that manufacturers may switch to palladium to mitigate a supply crunch. The two metals are used in exhaust systems of diesel cars to clean fumes.

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