Fed tests gold upleg
Gold’s outlook and fundamentals remain really bullish.
PGM futures trading in New York fell sharply in reaction to news that strike negotiations in South Africa ended with an “in-principle” wage deal.
Palladium futures trading on Nymex gave up more than 4% or $37 an ounce on Thursday to trade at $823.50 an ounce, while platinum contracts fell 2.6% or $38 an ounce to change hands for $1,443.20, well below the level it was trading at when the strike began.
Johannesburg paper Business Day reports the 21-week strike could end Friday if workers accept a new offer which would see basic pay increase by R1,000 month ($94) for the lowest wage workers, up less than $20 from a previous offer which was rejected:
“The strongest sign of a deal is that this is the first time in two months that leaders of the Association of Mineworkers and Construction Union (Amcu) have taken an offer to workers for consideration.
“Lonmin, Anglo Platinum and Impala Platinum announced that “in principle” undertakings were reached with the leadership of the Amcu in respect of wages and conditions of employment.”
More than 70,000 workers at the world’s three largest platinum and palladium producers, Anglo American Platinum (LON:AAL), Impala Platinumm (OTCMKTS:IMPUY) and Lonmin (LON:LMI), have been on strike since January 23.
The platinum price remains higher year to date, gaining more than 4%, while June palladium reached levels last seen early 2011 this week and is up 14.5% this year.
Futures trading on New York’s Nymex hit an all-time record price of $865 in February 2011, but the London fix for the precious metal peaked a decade earlier. On January 26, 2001 palladium was fixed at $1,090 an ounce, but then retreated sharply to $319 by October that year.
The three mines together contribute 40% of global supply have lost combined revenue of R21.8 billion ($2 billion) while striking workers have forfeited roughly $900 million in wages.
The strike has seen mining output in the African nation plummet leading to a contraction in the overall economy during the first quarter. Roughly 10,000 ounces of platinum production and 5,000 ounces of palladium were lost each day and when strikers do return to work it would take up to three months to bring the mines back to full production.
South Africa and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output which are mainly used to clean emissions in automobiles. The biggest consumer of PGMs, Europe’s auto industry is forecast to show growth for the first time in six years in 2014.
Platinum’s relatively subdued reaction to the strikes has been blamed on high above ground stocks and greater recycling.
Despite the fact that South Africa plays a secondary role to Russia in palladium production, the precious metal’s fundamentals are better.
Industry consultants Johnson Matthey Plc said last month platinum consumption will beat supply by 1.22 million ounces while the palladium shortfall will widen to 1.61 million ounces, from 371,000 ounces last year and the eighth year in a row of deficits.
That would constitute the largest market deficits ever, based on Johnson Matthey data going back to 1975 for platinum and 1980 for palladium.
Another major factor boosting the the palladium price has been the launch of two new physical palladium-backed exchange traded funds in Johannesburg in late March and the sharp increase in holding to some 3m ounces.
It also explains partly why palladium has fared so much better than platinum argues Standard Bank in a research note:
Over the past week, ETFs added 79Kozs of palladium to their holdings, while platinum ETF holdings increased by only 9.9Kozs. This should keep the metal well supported on any pullbacks.
Image from Youtube file footage
