Platinum rises but analysts remain wary

Workers at a Lonmin platinum smelter in South Africa. Analysts say output is unlikely to return to pre-strike highs. Photo: Bloomberg

Workers at a Lonmin platinum smelter in South Africa. Analysts say output is unlikely to return to pre-strike highs. Photo: Bloomberg

Published Jun 30, 2014

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Johannesburg - The platinum spot price rallied on Friday as investors took a positive position on the metal following the resolution of the five-month strike at the three platinum majors on Tuesday.

Platinum fixed at $1 479 an ounce in the afternoon in London, up $13 from Thursday’s second fix and taking its gain this year to 6.5 percent.

About 70 000 members of the Association of Mineworkers and Construction Union reported for duty on Wednesday after the longest mining strike in South Africa’s history.

Analysts were cautious about the price going forward, saying there were “a number of unknowns”. Lost production should have pushed the price higher than Friday’s level.

“The market needs to get a recovery plan from the miners, a sense of how much production will be lost going forward and how much above ground inventories are left,” Investec analyst Marc Elliot said on Friday.

Platinum stocks were mixed on Friday, with Lonmin falling 2.09 percent to R42.72, Impala Platinum down 0.92 percent to R108 and Anglo American Platinum up 1.13 percent to R462.50.

Mining houses had built up stockpiles for up to six months before the strike, cushioning its impact. Consumers may also have built up inventory.

Although the price did rally, it was expected to be much higher as above-ground stocks were depleted, Elliot said.

Earlier on Friday, French banking and financial services firm Société Générale said it was confident of a longer-term recovery in platinum prices despite potential for short-term weakness.

It said production would not necessarily fall into place immediately after the strike.

“The lingering effects of the strike, including the lead times for ore to become refined metal, but also due to mine changes and requirements for worker retraining, means that it will probably be over three months before production at the mine gate has returned to 90 percent of former levels, presupposing all affected shafts reopen.”

Market consensus is that production is likely to return to normal levels in the fourth quarter. The companies previously said they would focus on improving the health and wellness of employees as well as on restoring underground workings and processing plants after signing the wage agreement.

Employees would be required to undergo fitness tests and safety induction before returning to work, which would take weeks.

“In our view output will probably never recover to its previous peaks, as was the case after the strikes in 2012,” Société Générale added.

Experts believed that because of the length of the strike, structural damage to the underground workings was expected to be substantial, and many shafts were unlikely to be profitable.

The strike and wage increases had also accelerated the need to close some shafts.

Société Générale said if platinum prices fell below $1 400 an ounce, jewellery demand was expected to spike, especially from China.

Platinum is used mainly in catalytic converters to reduce gas emissions from vehicles, as well as for jewellery. “Investors may jump in ahead of anticipated tightness,” the bank said.

Investors were aware that a swathe of operations would be loss-making at the lower price level and hence cuts to operations would, eventually, be necessary, even if to some extent this arose from a lack of sustaining capital expenditure.

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