Platinum price: New round of industrial action

In afternoon trade on the Nymex in New York platinum for delivery in October added $2.20 to $987.20 an ounce, up sharply from an intra-day plunge on July 20 to $946.30 an ounce but within shouting distance of levels last seen end 2008. Compared to this time last year the metal is down 32.7%.

Sister metal palladium also found its footing with Nymex September contracts exchanging hands for $619.10, up 0.5% or $3.50 after plunging below $600 an ounce last week for the firs time in three year. The price of palladium jumped to 13-year highs above $900 an ounce in September last year.

Platinum’s primary use is in catalytic converters to reduce emissions – specifically for diesel vehicles – and Europe’s automakers are the top consumers of the metal where diesel makes up 50% of the market. Palladium finds more application in gasoline engines and is therefore more exposed to the Chinese and US markets.

China, is the world’s largest and fastest growing vehicle market, but the slowing economy and the chaos on equity market dented consumer confidence inside the country.

Predictions of some 6% year on year growth through 2020 were put in doubt after passenger car sales contracted 3.4% in June and production volumes also declined. In Europe the trend was the opposite with June sales rebounding by 15% from a weak May and in the US car sales remained on track for the best year in a decade.

Another factor putting the market under pressure is South African production of platinum returning to levels ahead of the crippling five-month strike in 2014.

But with labour action a constant threat and large parts of the industry operating at a loss, output from the country which produces more than 70% of the world’s platinum (and together with Russia control nearly 80% of primary PGM production) is expected to be lower in coming months.

World number three platinum producer Lonmin last week announce it will close two shafts in the country and idle three others. That will result in roughly 100,000 ounces of lost annual production – 2% of global supply – and a 6,000 or 16% reduction in its workforce.

Anglo American, parent of Angloplat which on its own produces more than 30% of the world’s platinum, last week announced it is cutting a third of its global workforce or 53,000 positions over the next few years.

Amplats has put a number of its South Africa mines up for sale, but so far has only attracted low-ball offers and the preferred route now appears to be a spin off by means of an IPO.

While smaller player Northam announced on Thursday a three-year deal with unions at its Zondereinde mine which produces 300,000 ounces a year similar-sized Aquarius Platinum said yesterday it is reviewing the viability of its shafts in South Africa and Zimbabwe which it shares with Angloplat and second largest producer Impala respectively.

The country’s National Union of Mineworkers and the more radical Amcu labour organization have vowed to fight any jobs cuts in the sector. They are also getting support from South Africa’s ruling African National Congress party which on Tuesday called any job cuts in the mining sector “unpatriotic” and that lay-offs should not be the first option “every time the behaviour of commodity prices goes down” reports the BBC.

Capital Economics estimate that on average the price of platinum has increased by 20% during each of the past eight disruptive episodes in South Africa. The independent research firm predicts the platinum price to rise to around $1,060 by the end of the year.

Source: Capital Economics

Meanwhile, this week workers at Stillwater Mining Co, the only platinum and palladium mine in the US also rejected managements latest offer. The Montana miner suffered work stoppages in 2004 and 2007 during labour disputes and in May said it’s sticking to targets of 520,000 to 535,000 ounces of production this year.