Strikes drive platinum industry into a deficit

by Trust Matsilele 0

Wildcat strikes drive down platinum and palladium 2014 production output in the sector.

Wildcat strikes in South Africa drove platinum market into a deep deficit; Thompson Reuters’ latest survey has revealed.

This situation was lessened though by stock movements and prior allocation of inventory; both the miners and consumers entered the strike well positioned to handle lower refinery outturn. 

(READ MORE: Platinum strikes could drive S.Africa into a recession)

“The deficit in 2014 follows seven years of market surplus out of the past eight years and is expected to be sustained, albeit at lower levels, in 2015,” read the company’s statement.

Thomson Reuters’ GFMS Platinum & Palladium Survey 2015 looks at the shifts and developments in the global Platinum Group Metal markets, their fundamentals and their drivers, over the past year and setting the scene for future.

The report also shows Palladium on deficit since 2007 which the average palladium price is forecast to be broadly flat year-on-year at $800/oz, modestly above current spot prices.

“The GFMS team estimate the palladium market deficit last year at 1.58 Moz, representing the most severe market imbalance for more than a decade.”

According to the report, the average platinum price is forecast to fall by 16 per cent year-on-year, averaging 1,170 US dollars per ounce, only three per cent higher than current spot prices. 

This suggests a closing of platinum’s discount to gold.

“Platinum mine production fell sharply in 2014, by 21 per cent, to at least a 15‑year low of 4.70 Moz (146.1 t),” read the statement.

“The decline was almost entirely due to significant strike action in South Africa, championed by the Association of Mineworkers and Construction Union (AMCU), which led to the idling of 60 per cent of the South African industry for a period of 22 weeks.” 

(READ MORE: Wildcat platinum strikes drive down Implats’ Q1 production)

The company said it estimated that losses over that period, including the ramp up of operations, totalled 1.36 Moz (42.1 t). 

“While this was a disastrous year for South Africa in terms of platinum output levels, it could have been worse at the level of corporate profitability, given the knock on effect of the strike on producer costs and continuing strong labour cost inflation.”