South Africa

Palladium prices experienced an 11 percent increase since the start of February. Supply concerns due to the South African platinum miners’ strike might have helped move prices higher. The move seems to have great momentum, but how much higher can prices go?

Palladium CME spot price since 2013 chart

Palladium CME spot price since 2013.

The precious and platinum-group metal (PGM) has been trading sideways since the end of 2012. During the month of March, prices are clearly confronting a resistance level that hasn’t been exceeded since 2011. A metal can trade sideways for long periods of time. When the price finally breaks through previous levels, this should be taken as a bullish signal as buying pressure has to be strong to push prices above those levels and a new upward move can start.

What This Means For Metal Buyers

If prices keep going up, we would recommend palladium buyers to start hedging for the balance of 2014.

Prices going above $800 per ounce might be a good time to start taking positions. Until that happens, we would advise buyers not to panic because prices could actually bounce down as they meet resistance levels.

Read more from Raul de Frutos.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

Every single gold, silver, platinum and palladium price point tracked by MetalMiner’s monthly Global Precious Metals MMI® rose over the month of February, pushing the index to a value of 96 for March’s reading, an increase of 5.5 percent from 91 in February.

Compare with last month’s trends – here’s our free February MMI® Report.

The precious metal price index is now in a steep uptrend, relative to the last time it bounced back in November 2013:

Global-Precious-Metals_Price Index Chart

However, as far as a few metals are concerned – gold and platinum, for example – we’re not sure how sustainable their rises really are. Let’s begin with gold.

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The platinum price has been rising for the last 12 months, as this graph from producer Johnson Matthey shows, even as gold – with which it is often linked – had been steadily falling for most of last year.

platinum price chart

Source: Johnson Matthey

Platinum and its sister metal palladium have certainly benefited from rising automotive production, stimulating demand from the catalyst market, but platinum has also seen support from unrest in South Africa’s mining sector.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

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The platinum market, to borrow a soccer phrase, is a game of two halves.

The platinum price has fallen steadily over the last 12 months, as the following graph from Johnson Matthey shows, but this coming year the future may not be as gloomy.

platinum prices johnson matthey chart

Source: Johnson Matthey

Platinum has struggled from the double-hangover of a falling gold price and excess liquidity created by above-ground stocks. The price has been dragged down like gold because of the metal’s role as a financial investment product, but a tightening supply market heralds a decoupling and rising prices this year and in 2015, according to HSBC in its recent Quarterly Metals & Mining Review.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

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electricity plant steam

Should a country like South Africa really be producing an energy-intensive product like aluminum when the country’s power supply is so constrained?

BHP Billiton (LON:BHP) is importing bauxite from the firm’s Australian mines, taking advantage of the cheap power afforded by Eskom’s consumers’ subsidized supply, and then mostly re-exporting the finished ingot.

Good deal for South Africa?

Various government spokesmen have defended the deal, saying local aluminum consumers rely on the domestic smelters for supply and that the country benefits hugely from BHP’s export revenues, but how true is that?

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In the murky world of South African politics and big business, it is tough to get through to the facts.

Critics have argued for years that BHP Billiton (LON:BLT)’s power deal with Eskom is a sweet deal for the firm and a disaster for the country. Brokered by Mick Davis (subsequently of Xstrata fame, but then Eskom’s treasurer), and later by Derek Keys, the National Party’s finance minister, Gencor (later in its guise as BHP) built the Richards Bay smelters to take advantage of a surplus of electricity back in the 90s that the firm was willing to sell cheap.

Since the middle of the last decade, though, Eskom has been in a near-permanent state of crisis over electricity supply, suffering widespread blackouts in 2008 and continual horse-trading with big industrial users, some of whom are paid to reduce consumption in order to keep the lights on.

In such a situation, BHP Billiton’s power rate, reported by one source at R0.09/Kwhr (US$0.01/Kwhr), appears untenably low compared to residential users at R1.00/Kwhr (US$0.09/Kwhr) – still cheap by rest-of-world standards, but not when compared to the country’s average income levels.

FREE Download: The Monthly MMI® Report – covering the Aluminum market.

Questions are being asked, not by politicians, unfortunately, but by South Africa’s press among others as to why BHP is being subsidized when the rest of the raw material processing industry is not, or not to the same extent.

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Most analysts and market commentators agree that palladium is looking likely for a price rise in 2014.

A number of reasons support this – but risks remain.

According to Forbes, last year at least 44% of the global supply of palladium came from Russia, some of it mined, some of it released from state reserves. Another 40% came from South Africa, with North America and Northern Europe coming in at single digits, so Russia and South Africa are key to the majority of supply.

On the plus side, as far as price is concerned, South African supply not only risks further worker disruption, but rising costs and falling ore grades make the economics increasingly difficult for some of the smaller players or marginal mines. South Africa has lost thousands of ounces of production this year and there is the ongoing threat of disruption next year.

FREE Download: The Monthly MMI® Report – covering the Precious markets.

The other large supplier to the market is even more opaque as to their position in 2014.

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nelson-mandela

Source: NBC News

Nelson Mandela, the monumental figure in the anti-apartheid movement and leader of so much more than just the South African nation from 1994 to 1999, passed peacefully on Dec. 5 in his Johannesburg home. His legacy and demeanor should never be forgotten, and should stand as a testament to racial reconciliation and political leadership the world over.

As the Wall Street Journal mentions in its obituary, the country Mandela worked so hard to bring into a fair, modern world still struggles:

“Though Mr. Mandela had stepped down from the presidency in 1999, he remained a father figure for a country going through wrenching economic and political change. South Africa’s economy has struggled to grow at a modest 2%, well below government targets of 7%, and unemployment among young people is close to 80%. In recent years, protests in predominantly black townships have erupted over poor public services and a dearth of job opportunities. Many young black South Africans, born after the dawn of democracy in 1994, are channeling their frustration toward the current government, led by Mr. Mandela’s African National Congress.”

Much of this can be seen in South Africa’s metals industry as well; case in point, the gold sector. MetalMiner co-founder and contributing editor Stuart Burns penned an article a few months ago speaking directly to the continuing strife that drags on, titled “Do Lower Prices Spell the End of South Africa’s Gold Industry?”

It begins, “The road since the end of apartheid in 1994 has not been a smooth one, but in the two decades that followed, it has been characterized by foreign investment and considerable optimism across all sections of society. But the government of Jacob Zuma has struggled to maintain the momentum started by Nelson Mandela and the last 12 months have been plagued with growing unrest, strikes and violence.

The last thing South Africa needed was another wave of strikes: the country was voted this year into the top 15 global destinations for foreign investment, according to Grant Thornton’s Emerging Economies report, but a falling currency, weak commodity prices and – crucially – a wave of worker unrest is undermining investment and stifling growth.” (Read the rest of the article here.)

We hope, for Mr. Mandela’s sake, that his beloved home country is able to develop the political and economic leadership its people deserve; namely, leadership and prosperity worthy of Mandela’s tireless struggle.

The road since the end of apartheid in 1994 has not been a smooth one, but in the two decades that followed, it has been characterized by foreign investment and considerable optimism across all sections of society.

But the government of Jacob Zuma has struggled to maintain the momentum started by Nelson Mandela and the last 12 months have been plagued with growing unrest, strikes and violence.

The last thing South Africa needed was another wave of strikes: the country was voted this year into the top 15 global destinations for foreign investment, according to Grant Thornton’s Emerging Economies report, but a falling currency, weak commodity prices and – crucially – a wave of worker unrest is undermining investment and stifling growth.

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The public debate developing in South Africa between BHP Billiton and the state electricity producer Eskom lifts the wraps on the usually secret world of power company-aluminium smelter supply agreements.

Like most aluminium smelters, BHP Billiton has been enjoying a preferential rate of supply with Eskom for its Richards Bay smelters, a deal made in the 1990s when Eskom had an excess of capacity.

In the current environment of brownouts and restricted supply, the price levels the South African electricity generator is providing the Australian mining and smelting company for power are proving hard to justify – or so Eskom is saying ahead of a public hearing on the matter.

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