Violent South African mining labor strikes shocked the globe in 2012, but the resulting negotiations underway could create more stable supply flows in the long term—that’s how CPM Commodity Analyst Erica Rannestad sees it. In this interview with The Metals Report, Rannestad discusses the key developments that could signal a price rise and which producers could clean up big on high-priced PGMs.
The Metals Report: Erica, the platinum group metals (PGM) sector created a lot of buzz at the beginning of this year. What can investors expect in the coming 12 months?
Erica Rannestad: There’s going to be a lot of development in labor and wage negotiation structures in South Africa. It could potentially improve labor conditions in the platinum mining sector, which would provide more certainty about supply flows.
The PGM markets are highly concentrated, meaning that both supply and demand are heavily reliant on only a few sources. On the supply side, about 75% of platinum mine supply comes from South Africa.
These metals are primarily industrial commodities and their prices move in tandem with industrial activity, mostly in the auto sector. At present, there is weakness in platinum prices because demand from the European auto sector is weak and contracting. During the next 12–18 months, growth could improve in the European auto market, which would be positive for platinum prices.
TMR: Could the downturn in automobile purchases in Europe be offset by growing automobile purchases in China and the rest of Asia?
ER: Not necessarily, because platinum is mostly used in diesel automobiles and the auto markets in China and most Asian countries are predominantly gasoline powered. While commercial vehicles are sold throughout the world, most are powered by diesel and the market only accounts for a minority of total global vehicle sales. Even though there is improved growth in the Chinese auto market, it’s not filtering into platinum prices so much as palladium prices because the Chinese auto market is much more reliant on palladium.
TMR: In 2012, some intense labor conflicts in South Africa lead to the Association of Mineworkers and Construction Union (AMCU) to become the majority union at Lonmin Plc (LMI:LSE), Impala Platinum Holdings Ltd. (IMP:JSE) and Anglo American Platinum Ltd.’s (AMS:JSE) Rustenburg complex. What does this mean for the industry at large?
ER: Lonmin and the AMCU are struggling to form an agreement about revisions to the wage negotiation process. There’s still a lot of uncertainty right now, and high risk of additional strikes over the upcoming months. But there’s potential for a reduction in uncertainty about labor-related disruptions to supply in the long term.
TMR: Will the Lonmin deal set the precedent for other companies?
ER: Not necessarily. Last year, Lonmin agreed to a maximum 22% increase in wages. The market thought it was going to set a precedent, but that didn’t necessarily happen. The Chamber of Mines, the Department of Mineral Resources and platinum mining companies are working together in a collaborative way to try and resolve labor issues.
For the rest of this interview, click here: http://www.theaureport.com/pub/na/15399