Platinum gains seen short-lived after mine tragedy
ReutersStriking miners chant slogans near Lonmin's Marikana mine in South Africa Wednesday, a day before a clash with police left more than 30 miners dead.
SAN FRANCISCO (MarketWatch) -- Platinum futures rose more than 5% in the last two sessions after the killing of more than 30 striking workers in a South African platinum mine, but plentiful supplies and slack demand make such gains likely short-lived.
The deaths reverberated in the commodities market Friday, highlighting the challenges of platinum, a market where supplies are as abundant as labor disputes and production snags.
Platinum for October delivery (PLV2) , the most active contract, gained $37.90, or 2.6%, to settle at $1,473.10 an ounce on the Comex division of the New York Mercantile Exchange Friday. That was its highest settlement since early July.
Police officers opened fire on armed miners from
Lonmin has said it has lost six days of mined production due to the strike, which started last Friday. More than 10 people were killed earlier in the week as the conflict escalated. Shares of the company fell 8% in London in the last two days.
Pressure to restore output
Platinum markets have been in surplus. The industry may now find it difficult to scale back output due to fears of further strife.
The Marikana deaths represent a "worrying trend for the platinum industry," said Anne-Laure Temblay, an analyst with BNP Paribas, in a note to clients.
Social tensions seem to be spiraling out of control in South Africa and will make it more difficult for companies to make production cuts in the coming months, she said.
Nearly two-thirds of the world's platinum is mined in South Africa, where aging mines, frequent labor struggles, and power supply interruptions have long worried investors.
The supply surplus and a tepid demand outlook have held back platinum's gains. Even with the Lonmin production halt, platinum futures have added 5.4% in the past two days. They are up more than 4% for the year.
"Most of the gains (due to the conflict at Marikana) are behind us," said Edward Meir, an analyst at INTL FCStone Inc. "The tragedy has garnered so much attention ... there will be a lot of pressure in South Africa to restore security and production will resume" relatively quickly.
Including the disruption at Marikana, the market is expected to remain on a surplus this year, analysts at Barclays said in a note to clients Friday.
Demand for platinum has been hit by concerns about the euro zone's sovereign debt crisis and worries of a slowdown in China. Scaled-back growth in these regions has undermined consumption of platinum, a key part of catalytic converters for diesel automobile engines, which are more prevalent in Europe and China.
Talks that Russia, the world's No. 2 producer, recently sold some of its stockpiles of the metal have also kept prices under pressure and added to concerns about a surplus.
Clashes at Marikana were a volatile combination of pay disputes and rivalry between two unions -- the emergent Association of Mine and Construction and the dominant National Union of Mineworkers.
The battle between the two unions has already cost
Market observers are concerned about a spillover effect to the larger platinum producers, he said. Large platinum producers also include No. 1
"What you are seeing over the past few days is an oversold market rushing to short cover on the tragic events at Lonmin," Murray said in e-mailed comments. "This is about as bad as I've seen it in my 20-plus years of doing this. The next couple of weeks will be critical."
Gains in platinum futures were tellingly small despite the severe production disruptions, BNP's Temblay said. "This, to us, is a reflection of the size of the market surplus."
Relative strength in U.S. and Chinese auto markets are not enough of a counterbalance to the contracting auto sector in Europe, and real improvement there is still some time away, she added.
Shares of exchange-traded products also gained on Friday, with
Platinum, rarer and more difficult to mine, has had a long track record of being the most expensive metals futures, fetching higher prices than gold. That relationship, however, was turned upside down last year, a reflection of gold's decades-long rally but also of the ongoing concerns plaguing the platinum market.