Picture: THINKSTOCK
Picture: THINKSTOCK

THE platinum price had risen a healthy 0.83%, or $11, to $1,391.50 at midday on Monday as investors took a favourable view of the metal based on the weaker rand and possible supply constraints due to the strike in the sector.

Declines in output in South Africa tend to push the entire platinum market into deficit and the volatility in the price since the beginning of the year is making analysts cautious, despite the fact that less supply pushes prices higher. South African platinum supply to the global market dipped into deficit in 2012, with hardly any recovery being seen in 2013.

After reaching a December high of $1,341.70 at the end of last year, it firmed to $1,464.50 on January 22, but fell to $1,380 on Friday. The platinum price was at $1,714 on February 8 2013.

Imara SP Reid platinum analyst Sibonginkosi Nyanga said the strike in the sector — now in its third week — was beginning to hit the supply of stock once again.

"But basically it is also a weaker rand story," he said, adding the weaker currency would be favourable for earnings.

He pointed out that Anglo American Platinum (Amplats) swung back to profit as it rebounded from a wave of wildcat strikes that occurred before the present strike started.

And with a restructuring plan currently under way to address a number of key issues, Imara is positive about the company’s prospects.

"Given the ongoing likelihood of industrial action, we retain our hold recommendation," said Mr Nyanga.

Amplats has closed up expensive shafts in the Rustenburg area and "is basically done with restructuring", he said.

Imara is also positive about Northam Platinum as Northam has largely sorted out its strike problems. The National Union of Mineworkers recently ended an 11-week strike at Northam after accepting a wage increase offer of up to 9.5% and a R3,000 one-off payment spread over two years.

"Northam’s Booysendal offers some real production growth as the project ramps up to full production," said Mr Nyanga.

Noah Capital Markets platinum and mining analyst Mike Cavanagh is less optimistic about the entire sector’s prospects, however. "I am pretty bearish on the sector," he said.

He does not foresee a further sharp rise in the platinum price as global secondary suppliers, who recycle the metal, are beginning to play a more important role.

"The share prices of some platinum producers are bound to rise on the back of the weaker rand, but it is difficult to make a case to global investors for investment in local platinum producers."

He has a sell recommendation on all the major local platinum producers, including Amplats and Impala Platinum (Implats), but has a hold on Aquarius and Royal Bafokeng.

The volatility and uncertainty in the markets is making investors think harder about where they put their money, and like with platinum, gold counters are no different. The gold price also rose quite strongly today to $1,276 an ounce — a gain of 0.69% after lunch.

The fundamentals for gold may remain negative as global investors begin turning away from safe-haven assets as global economic conditions thaw, but investors do see some opportunities.

Mr Nyanga favours Pan African Resources and Sibanye Gold. "We are at present staying away from AngloGold Ashanti and gold companies with exposure outside South Africa."

Sibanye is on his radar as it produces gold at present at a low price of about $1,000/oz. Although some gold companies may look expensive to buy under these conditions, Mr Nyanga prefers to focus on fundamentals underpinning the company’s value.