Platinum prices could see short-term increase

6 September 2012

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6 September 2012 | Anna Reynolds

UK-based Lonmin, the world’s third biggest platinum producer, told SM a three-week long illegal strike at its Marikana mine in South Africa could lead to increased prices.

A spokesperson said while supply has recently outstripped demand – as a result of lower need in the European auto catalyst market (the largest consumer of platinum) – the industrial action could result in higher costs. “This means prices may increase slightly in the short term due to investor nervousness about the current South African operating environment; however it has been acknowledged that this will not move the platinum market into deficit anytime soon,” they added.

Lonmin said its priority is to resume production and ensure peaceful conditions for its employees following the strike by thousands of workers who want higher pay, which has resulted in 44 deaths – 34 miners and 10 police officers. Talks have currently been adjourned to sign a peace accord.

In January this year a similar, although less violent, labour strike took place at a mine run by Impala Platinum. The Impala mine remained shut for six weeks before reopening.

Dr David Jollie, strategic analyst at Mitsui Precious Metals said: “South Africa has over 75 per cent of mine production and because supply is concentrated in a small area, any supply side issues have the potential to spill over and potentially pose an upside risk to the platinum price.

As with the problems at Impala earlier this year, this situation has driven the platinum price higher. At Impala, it took over six weeks to get production running again and, given the higher level of violence at Marikana, this seems the minimum timescale we can expect production to restart on. Until then, some price impact can be expected.”

Jollie said other issues affect platinum prices, from the chances of QE3 (quantitative easing by US banks) to the outlook for the euro. He concluded that the market could yet be in deficit this year, but added “demand for platinum is relatively weak and liquidity remains good so the potential for significantly higher prices purely based on supply issues is somewhat limited”.

Lonmin’s interim results released in May showed total revenue for the six months up to March 2012 was down by almost 20 per cent on the same period in 2011.

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