A labour dispute, which has all but shut major platinum mines in South Africa since January, is extending the longest shortfall in global production since 2005, which Morgan Stanley predicts will take at least four years to fix.
For a third consecutive year, makers of automotive parts and jewellery will use more of the metal than is mined. On March 31 Credit Suisse raised its deficit forecast for this year by 25 percent to 836 000 ounces, after concluding that the strike would prevent more than 1 million ounces from being retrieved this year.
Workers, who normally earn R5 000 a month, have been paid nothing since the walkout began, forcing some to sell belongings as union leaders renew demands for higher pay. Mine owners including Lonmin say they are losing $15 million (about R157m) a day and may buy metal to meet supply commitments. Hedge funds have more than doubled their bets on higher prices this year, and holdings in exchange-traded funds backed by platinum are up 68 percent from a year ago.
“It’s a challenging situation,” John Stephenson at First Asset Investment Management said. “I see platinum becoming very, very precious.”
Futures would average $1 639 an ounce this year, Morgan Stanley predicted in an April 8 report. The bank said the production deficit would last at least until 2018, fuelled by rising demand for the metal in catalytic converters, which reduce vehicle emissions.
The strike reduced output of platinum group metals, including palladium, rhodium, iridium and ruthenium mined from the same ore, by 36 percent in February, the most in two years, Statistics SA said on April 10. South Africa supplies more than 70 percent of world platinum output.
Hedge funds and other large speculators were holding a net long position of 31 730 platinum futures as of April 8, after increasing bets in six of the past eight weeks, US Commodity Futures Trading Commission data show. Wagers jumped to a one-year high last month.
Platinum futures are up 4.7 percent this year in New York, trailing the 8.4 percent advance in gold. Palladium has gained 12 percent as the strike reduced output from South Africa, and tensions escalated between Ukraine and Russia, the biggest producer. The US and EU are discussing more sanctions against Russia.
The strike by more than 70 000 South African workers would continue as long as companies refused to improve wage offers, Joseph Mathunjwa, the president of the Association of Mineworkers and Construction Union, said last week.
The workers want basic monthly pay boosted to R12 500 over four years, which the producers say they cannot afford after production costs jumped 18 percent annually in the past five years, as wage and electricity costs rose. Many labourers live in shacks, do not always have water or power and spend much of their income servicing debt.
“The union may have to distribute food as workers have not been paid so long,” Sydwell Dokolwana, the National Union of Mineworkers’ regional secretary, said. “There’s a huge problem here, and it is… very bad.”
In Rustenburg, mining-related activities account for about half the jobs and 60 percent of the economy, according to Thapelo Matebesi, the spokesman for the local municipality.
Any price rally might be short-lived because inventory remained high and buyers in China, which accounted for 70 percent of platinum jewellery, probably would balk at higher costs, Standard Bank said in a report last week.
Futures are down 1.7 percent since the strike began, partly as the appeal of haven assets including gold faded. Supplies of recycled platinum will rise year 3.7 percent this year to 1.36 million ounces, according to CPM Group.
“Clearly people are not convinced that Europe has come out of the woods” after a recession in 2012, David Christensen, the chief executive of ASA Gold and Precious Metals, said. “Also, supplies have not yet hit a precarious condition for people to start betting on higher prices.”
Disruptions at platinum mines risked damaging long-term demand by pushing industrial users to use alternative metals, including palladium, researcher Johnson Matthey said on January 29.
Palladium jumped to $817 an ounce on April 14, the highest since 2011, on speculation that demand from vehicle makers in the US and China might rise amid supply concerns. On Thursday afternoon in London, platinum was fixed at $1 437 an ounce and palladium was fixed at $801. – Bloomberg