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PGMs Get Yet Another Boost From South African Power Blackouts

By Allen Sykora of Kitco News
Thursday March 6, 2014 10:11 AM

(Kitco News) - Platinum group metals got a boost from yet another factor Thursday when news emerged that South African utility Eskom Holdings began rationing electricity.

This comes on top of a supply disruption already occurring in the country due to a strike against three major producers that began in January, as well as worries that palladium supplies from Russia could be disrupted if Western nations should impose economic sanctions on the country for its military involvement in Ukraine.

According to news reports, the Eskom development was the first time the utility resorted to rotational load shedding since 2008. At that time, temporary shutdowns of mining operations helped platinum hit its all-time record high.

“This news about Eskom that came out earlier today is adding fuel to the fire,” said Afshin Nabavi, head of trading with MKS (Switzerland) SA.

As of 9:43 a.m. EST, platinum for April delivery was up $7.40, or 0.5%, to $1,484 an ounce on the New York Mercantile Exchange. Sister metal June palladium was up $9.45, or 1.2%, to $782.30 an ounce.

April platinum peaked at $1,488 an ounce, stopping just shy of Wednesday’s six-month high of $1,489. June palladium peaked at $785. On a futures continuation chart, this is the metal’s loftiest level in roughly a year, when it hit a $788.45. That, in turn, was the highest price since September 2011.

The current rolling blackouts were blamed on heavy rains that disrupted the company’s supply of coal, used to generate the majority of Eskom’s power. Eskom provides 95% of South Africa’s electricity.

“As if platinum and palladium needed anything else to continue their surge higher, Eskom declared a power emergency this morning, and began rolling blackouts for the first time in six years after heavy rains have caused coal shortages,” said Steve Scacalossi, director and head of sales with global metals at TD Securities. “Coal supplies 80% of the power in South Africa, and so the impact of this will likely continue to fuel the PGM rally further. We see initial targets of $800 for palladium and $1,520 for platinum, but room to $850 and $1,555.”

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Already, platinum group metals have been underpinned by a strike against three major producers in the country, Anglo American Platinum, Impala Platilnum and Lonmin.

The Commission for Conciliation, Mediation and Arbitration on Wednesday temporarily suspended talks between producers and the Association of Mineworkers and Construction Union, with a wide gap in the respective positions of the two parties. The union earlier this week had softened its stance some, but the producers rejected the latest offer.

One North American trader characterized the Eskom news as “déjà vu,” recounting the rationing of electricity to mines back in 2008. On top of strong demand back then ahead of the financial crisis and labor issues, the Eskom electricity shortages pushed platinum to a record high of $2,281.40 an ounce in 2008, based on a futures spot continuation chart.

In the current situation, however, many mines are already shuttered due to the strike. Yet, the Eskom news is a reminder of the potential for electrical shortages in the country to interfere with production that relies upon power for mining far below ground.

The trader added that technical buying is also supporting platinum group metals. However, he added, physical buying in the Asian region has abated on the rally.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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