South African finance minister Pravin Gordhan predicted that the strikes affecting South Africa’s platinum mines over the past three months would cause less economic damage than the industrial action that took place in 2012.
It seems this prediction has already been proven wrong.
In 2012, the industry saw losses of between 500 000 oz and 600 000 oz in total, and Thomson Reuters GFMS research director of precious metals William Tankard estimates that 800 000 oz of the precious metal has already been lost to the strike.
Even if the Association of Mineworkers and Construction Union (Amcu) accepts the latest offer by Anglo American Platinum (Amplats) and Impala Platinum (Implats) of a basic R12 500 per month cash remuneration offer for entry-level underground employees by 2017, the companies will take months to return affected mines around Rustenburg to prestrike output levels, resulting in further production losses.
“I would expect this to have an impact on the market,” says Tankard. “We are already looking at a situation 30% worse than that of 2012 and counting.” In 2012, output dropped 12% to 4.18 million ounces due to the industrial action.
What will the effect be in 2014?
Morgan Stanley, an American multinational financial services corporation, believes it will take four years to make up the shortfall in global production. The ongoing strike has resulted in the worst shortfall since 2005, as South Africa supplies more than 70% of world platinum output. For the third year in a row, production will not be able to keep up with demand.
On March 31 Credit Suisse raised its deficit forecast for this year by 25 percent to 836 000 ounces, after concluding that the strike would prevent more than 1 million ounces from being retrieved this year.
“It’s a challenging situation,” John Stephenson at First Asset Investment Management said. “I see platinum becoming very, very precious.”
Nomura emerging markets expert Peter Attard Montalto warns that South Africa is beginning to face competition from recycling as well as Zimbabwe’s increased output, and so 60% of platinum sector jobs are at risk of restructuring.
“Overall, the platinum sector needs major change to ensure its long-run sustainability as a key export driver beyond simply short-run cash generation that is occurring now due to the strike,” says Montalto.
“Greater labour competition and greater regional competition, as well as government intervention that recognises the problems but doesn’t go too far, will all be needed to allow the industry to shift onto a sustainable path.”