Picture: THINKSTOCK
Picture: THINKSTOCK

ABOUT a fifth of South Africa’s annual platinum production has been lost to an eight-week strike that has cost the country more than R13bn and prices are now starting to reflect market concerns.

The world’s three largest platinum producers and the Association of Mineworkers and Construction Union (Amcu) have hardened their positions, with no end in sight to the strike, which has entered its ninth week.

Thomson Reuters GFMS research director of precious metals William Tankard estimates 800,000oz of platinum has been lost to the strike, with 500,000oz coming from unmined production to date and a further 300,000oz to be lost as companies take months to return affected mines around Rustenburg to prestrike output levels.

"I would expect this to have an impact on the market. If you compare it to 2012 when we saw losses of between 500,000oz and 600,000oz in totality, then we are … already looking at a situation 30% worse than that and counting," Mr Tankard said.

The price reaction to the strike has been muted because the three producers have been supplying metal into contracts from their processing pipelines and inventories. "Only now are critical shortages coming through at the refinery level and as this becomes more pronounced I would expect to see a response in the price."

GFMS said output in 2012, a "disastrous year for the South African platinum industry" had dropped 12% to 4.18-million ounces because of strikes.

Johnson Matthey estimated in November that platinum output from South Africa, the world’s single largest source of primary platinum, would be 4.12-million ounces in 2013.

The platinum price has risen from below $1,380/oz in the first week of February to $1,451/oz.

"The market has seemed almost unperturbed by the strike up until about a week ago, as no interruptions in deliveries have occurred from the three producers up until the end of March," said Impala Platinum executive of marketing Derek Engelbrecht.

"However, from the last week we have seen a little anxiety emerge, possibly as a result of the rising premiums for sponge over ingot — an unusual occurrence," he said.

Platinum sponge, a powdered form of the metal, is used by makers of autocatalysts and ingots by jewellers.

"If the strike continues for another three or so weeks, which looks likely at the moment … then the market, particularly for sponge, is going to tighten and prices should start to react," he said.

HSBC said in a note: "While sales from stock may mute the short-term price impact of supply interruptions, ultimately above-ground stocks are being consumed at a greater than expected rate and are supportive of higher prices in the medium term."

Palladium lost to the strike stands at 400,000oz, based on loss production to date and the restart of mines, Mr Tankard said. Standard Bank is launching a palladium-backed exchange traded fund on the JSE which could widen the palladium market’s deficit.

Amcu called the strike on January 23 to push for its demands that basic, entry-level salaries be raised to R12,500 a month from R5,000-R5,700 a month.

Anglo American Platinum, Impala Platinum and Lonmin have collectively said that the demand is unaffordable.

Talks have broken down and have not resumed. There has been not contact between the companies and Amcu to talk about wages since the collapse of the process facilitated by the Commission for Conciliation, Mediation and Arbitration on March 14, said Implats spokesman Johan Theron.

Companies are now engaging directly with their employees, who have lost R4bn in wages, in the hope that they in turn will pressure Amcu leadership into returning to talks with a revised demand to bring an end to the strike that have cost companies R9.1bn in forfeited revenue.

The longest strike in South Africa’s mining history was the nearly 12-week-long strike at Northam Platinum, which ended earlier this year. At Vale’s nickel operations in Sudbury, Canada, workers were on strike for a year, while in Britain, coal miners embarked on a year-long strike in the mid-1980s.