Analysis: Platinum Strike Dragged South Africa Into Recession, Didn’t Affect Prices

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In spite of the exhortations of Joseph Mathunjwa, Salvation Army lay preacher and leader of South Africa’s Association of Mineworkers and Construction Union, the five-month South African platinum mining strike has finally ended as a bit of a damp squib.

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Not for the workers’ families who, no doubt, have been going through considerable hardship as the strike has ground on, but the market’s reception to the news has been rather muted.

According to Reuters, the spot price of platinum fell just 1%, South Africa’s currency, the rand, firmed nearly 1% against the dollar to two-week highs and the London-listed shares of number three producer Lonmin rose as much as 7%, while those of the precious metal’s two biggest producers, Anglo American Platinum and Impala Platinum, closed up 1.6% and 1.1% respectively in the aftermarket.

Workers voted in a union-organized rally this week to end the strike and accept the latest wage deal. The AMCU had initially demanded that basic wages be more than doubled immediately to 12,500 rand ($1,200) a month according to Reuters. In the end, its members settled for three-year deals that amount to monthly increases of around 20%, or at least 1,000 rand a month for the two lowest-paid groups of employees – unskilled labor and semiskilled labor such as rock drillers and other machine operators.

In the trade-off to make this affordable to the mining companies, other categories of workers will receive an increase of 7.5%-8% on their basic wage and all workers will get back-to-work bonuses.

The mining companies, constrained by depressed prices and soaring costs, had said the massive hikes AMCU was initially seeking would sink the industry. Even so, the terms are expected to add 1 billion rand to the platinum producers wage bill, South African publication BD Live reported this week, leading to cost cutting and layoffs in time.

The market’s reaction has been limited, probably suggesting the settlement had been priced in by investors in recent weeks. The most significant movement has been a liquidation of long positions, but this has been going on for the last couple of weeks as the market anticipated the end was near.

It will take some time to achieve full production again and, in the meantime, the mining companies have lost some 24 billion rand of revenue ($2.25 billion) not to mention dragged the South African economy into recession in the first quarter, so all parties will be keen to get production going again. According to Standard Bank, the upside for platinum is limited, with the metal likely to trade in a range from $1,400-1,500/oz much as it has done for the last month. Palladium, the bank feels, is harder to gauge but advises it “has value” at below $800, suggesting this is a floor with some upside potential.

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