Power outages in South Africa cause platinum, palladium price rises

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Platinum has had a decent year from a price perspective.

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Not as strong as palladium, by any means. But despite the travails of the global automotive market, tighter emissions standards have helped demand.

But now price support has come from an unlikely — and unwelcome — source.

South Africa’s monopoly power utility Eskom has been suffering a wave of disruptions due to production failures that have led to blackouts to the country’s mining and refining industry.

According to the Financial Times, after being starved of investment by ex-President Jacob Zuma’s corrupt administration, Eskom’s aging coal-fired power plants are in a dire state. Maintenance of aging coal plants is only part of the problem, as their new replacement power plants have been riddled with flaws, the article reports.

Power cuts earlier this year pushed the country close to recession. The most recent outages have intensified over the last 36 hours, as heavy rains have flooded some power stations.

Multiple failures affecting about a quarter of the country’s power plants have forced the utility to introduce severe rolling “stage 4” cuts of 4,000 megawatts of power on Tuesday of last week, but it was still scrambling to fix breakdowns affecting another 15,000 megawatts — roughly a third of its generating capacity — by the end of the week.

The rolling blackouts were escalated to stage 4 on Friday last week, with a rise to stage 6 (a complete loss of power) bringing many mining companies to a complete halt.

Among them are reported to be Sibanye-Stillwater, Vedanta, Impala Platinum, and Petra Diamonds. Sibanye is the world’s largest platinum producer; the news of Sibanye and Impala’s blackouts caused a 3% spike in the platinum price (see chart from moneymetals.com below):

Source: moneymetals.com

The ongoing disruption is causing some miners, like Vedanta, to question further investment in their South African zinc mines. Meanwhile, others are considering building their own supplementary power production capacity, but on a wider scale.

Eskom has been described as the biggest challenge facing South Africa, a country with many seemingly insurmountable challenges. If the country cannot provide reliable power, it cannot operate an effective economy.

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These recent power-related problems are unlikely to be the end of the issue.

But it is hoped, as miners and refiners shut down for the Christmas–New Year break, Eskom can get some critical maintenance work completed prior to major consumers coming back online in mid-January.

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