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FOCUS: Platinum Hits Two-Week High; Market Eyes Upcoming South African Wage Talks

By Allen Sykora of Kitco News
Monday April 29, 2013 11:33 AM

(Kitco News) - Supply worries are starting to creep back into the platinum market, with wage negotiations in the key producing nation of South Africa scheduled to start next month.

Whereas the entire precious and base metals complex is in the green so far Monday, platinum is outperforming the others, with sister metal palladium not far behind.

“Supply concerns seem to be reasserting themselves,” said Jim Steel, precious-metals analyst with HSBC.

In particular, a couple of traders – one in Europe and one in the U.S. -- told Kitco News that some of the focus is potential for labor issues just ahead of the start of South African mining negotiations in May.

In particular, one trader cited news reports saying that the National Union of Mineworkers plans to seek a double-digit pay increase for workers at a time when many producers are already struggling to remain profitable. This is drawing investment money back into the platinum group metals, the trader said.

“People are viewing it as a good buying opportunity down here,” he said of platinum prices that earlier this month hit the lowest level since last summer. 

As platinum climbed above the $1,500 area, the buying was accelerated when stops were triggered, another trader said. These are pre-placed orders automatically activated when certain chart points are hit. Finally, some selling in the form of profit-taking set in around the highs, the trader said.

As of 11:09 a.m. EDT, July platinum was $38.50, or 2.6%, higher at $1,515 an ounce on the New York Mercantile Exchange. It peaked at $1,518.70, its strongest level since April 12. June palladium was up $15.35, or 2.3%, to $697.30 and hit $698.25, its most muscular level since April 15.
Among the metals, South African labor issues are especially significant for platinum since the country provides some three-quarters of the world’s mine supply. “That was the No. 1 factor in the marketplace last year,” said Robin Bhar, metals analyst with Societe Generale. Labor problems can emerge a number of ways, whether there are outright strikes or unions tell mine workers to intentionally work slowly.

“This is a really crucial matter coming up,” Bhar said. “The market will be glued to the news headlines.”

Platinum group metals have been on the defensive over the last couple of months due to worries about demand, said Bart Melek, head of commodity strategy for TD Securities. Platinum especially has been hurt by the soft European auto sector, since diesel-powered vehicles that require platinum are popular on the continent. Also, recently softer-than-forecast data in the U.S. and China have left many thinking demand will not be as strong had been expected earlier in the year.

The price impact of supply worries would become more pronounced if it appears the South African negotiations are not going well, Melek said. That’s what happened last year when spot platinum surged from below $1,400 an ounce in mid-August to as high as $1,715 a month later during wage talks that were not only acrimonious but deadly when police opened fire on workers at Lonmin’s Marikana mine. Workers in many instances were able to win substantial increases, including up to 22% at Lonmin.

This year’s wage talks come at a time when some companies maintain some operations are not profitable at current prices. The world’s largest producer – Anglo American Platinum – is in talks with the government and union about shuttering some mines, which could mean up to 14,000 job cuts.

A TD Securities report last week estimated that some 40% of global platinum production is “underwater on an all-in cost basis” at around $1,490 an ounce, the price as of the firm’s report. Around 20% of palladium output was estimated to be unprofitable at $685.

“It could be another tough round of negotiations,” said Bhar.

Still, there is at least some possibility that the wage talks may end up not being as cantankerous as the market fears, Bhar added. With workers aware that Amplats wants to shutter some output, unions may end up being more cautious and willing to simply protect jobs, Bhar pointed out.

Yet, a complication for labor issues in recent years is a turf wars between unions, such as between the NUM and the Association of Mineworkers and Construction Union. Both unions want to be seen as doing the most to help workers.

“It’s going to make for uncertain negotiations,” Bhar said. “It could be long and drawn out. But on the other hand, they might settle pretty quickly because jobs are on the line….These companies are really struggling to survive.”

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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