[miningmx.com] – PLATINUM rose to its highest level in just under a year unseating expectations it would correct following the resolution last week of a five month strike in South Africa’s platinum sector.
The metal was last trading at $1,512/oz in New York, a gain of nearly 3% from its intraday low of $1,470/oz on June 30, and some $100 more, or 6.5% higher than its level at the start of 2014.
A report by Bank of America Merrill Lynch said the strike had put the market “firmly in deficit” with some one million ounces of production deferred.
“Going forward, we believe further production losses are likely as miners ramp up output to steady state only gradually; also, producers have highlighted that the recent wage settlement makes re-organisations inevitable, raising the risk of capacity closures,” it said in a report dated June 30.
“While miners are yet to provide guidance for future production levels, the loss of 200koz to 250koz in platinum production is easily possible,” BoA Merrill Lynch said.
Hanre Rossouw, an analyst for Investec Asset Management, said the price improvement might seem somewhat counter-intuitive given the strike end, but in fact it was consistent with supply/demand dynamics, and in line with market expectations of a stronger platinum and palladium prices towards year end.
“Even though we have already seen more than one million platinum ounces lost in the recent five month strike, it has become clear that we’ll see further losses in a slower start-up and significant restructuring of operations over the next six months,” he said.
“So together with recent reported robust vehicle sales, it’s perhaps not surprising that platinum and palladium has reached multi-year highs,” Rossouw said.
The increase in buying of the metal is not coming from investors in exchange traded products. “We are seeing normal volumes,” said Michael Mgwaba of Absa Capital’s ETF and Index products which launched a palladium debenture in April 2013.
“Volumes traded are not significantly more than we’ve seen in the past few months; they’ve been fairly normal,” said Mgwaba. To date some 1.18 million ounces of platinum had been bought through the issue of 108.8 million securities, he said.
Absa Capital launched a palladium ETF in May which had grown to 41.6 million securities equating to some 416,000 ounces of the metal. The price of palladium traded as high as $858/oz earlier this month, levels it hadn’t seen for about two years.
A report by Goldman Sachs today suggested, however, that in the long-term the platinum market remained over-supplied.
“We continue to believe that in the long term, however, the market remains well supplied and that marginal cost will remain the key driver of price – a dynamic that in the long term is likely to put significant pressure on producers at the top of the curve,” it said.
The expectation of platinum industry restructuring, especially in South Africa’s Rustenburg region had helped push the platinum price up in the short-term as well as restocking. “It is possible that inventories are being restocked following the end of the strike and with mines needing a number of months to ramp back up to full production.
“This is certainly possible and would lead to a tighter market than we had anticipated,” said Goldman Sachs.
