Platinum slated to gain more on S. Africa unrest
ReutersMineworkers take part in a march outside the Anglo American mine in South Africa's North West Province, September 12, 2012.
SAN FRANCISCO (MarketWatch) -- Labor strife in South Africa is set to boost platinum prices for months to come, with a once oversupplied market likely becoming tighter by year end.
Industrial demand for platinum is still seen as weak, and investors seem ready to make up for that lack of appetite. Platinum is a cheaper alternative to gold, and the concerns about South Africa, which mines 80% of the metal, are unlikely to abate. That outlook has enticed financial buyers.
Some analysts are calling for platinum futures prices beyond $1,750 an ounce by the end of the year, which would be a 2% increase over Friday's settlement price.
Platinum for October delivery (PLV2) , the front-month and most-active contract, was up $34.20, or 2%, to settle at $1,713.70 an ounce on the Comex division of the New York Mercantile Exchange on Friday. It gained 7.4% just this week.
That climb has come on the back of weeks of South African strikes and production cutbacks.
Heightening supply fears, the prospects for output coming back on line quickly are not good.
South Africa's latest labor unrest started with protests and violent clashes at
Production losses in South Africa are running around 4,000 ounces of platinum per day, or almost a third of total South African production, estimated chemical and precious metals company Johnson Matthey.
The political and labor issues won't "get resolved quickly or easily," said Jeffrey Christian, managing partner at CPM Group, which estimates platinum markets are not oversupplied at the moment.
"It is a lot tighter than people think," Christian said. "You could see prices north of $1,750 by the end of the year."
Platinum has gained more than 21% this year, second only to silver gains among the most liquid metals futures. Platinum, mostly used as a key component in catalytic converters in diesel engines, has gained around 11% in September.
Some of that rise has likely come from investors that have opted to buy stock-exchange-traded vehicles rather than go the traditional futures route.
Exchange-traded funds and notes backed by platinum are hovering close to a September 2011 record, said Carsten Fritsch, an analyst with Commerzbank.
Holdings in platinum-backed exchange-traded products totalled 1.471 million ounces as of Thursday, compared to 1.489 million ounces in the September high-water mark. That's up from about 1.35 million ounces until mid-August.
Gains have also come as investors buy into precious metals boosted by the stimulus plan just announced by the U.S. Federal Reserve and the hopes other central banks will follow suit.
Anglo American, Xstrata production halts
News reports from South Africa, meanwhile, point to little if any progress on the talks with upset mine workers.
Workers at the Marikana mine rejected a pay offer on Friday and remained on strike.
Earlier this week,
Complicating matters, South Africa's President Jacob Zuma faces an internal African National Congress election this fall amid a widely held view that his government was slow to respond to the crisis, and a South African firebrand politician has called for a general mining strike to start on Sunday.
South Africa on Friday attempted to curb the violent protests and strikes, threatening to make arrests. Groups of protesters have traveled to mines in the Rustenburg area, the heart of South Africa's platinum production, urging miners of other companies to join the nationwide strike on Sunday, according to media reports.
The ANC elections muddle the picture further, and the situation may not change for the next three to four months, said Kirill Kirilenko, precious metals analyst with metals consultant CRU in London.
"The situation will remain difficult," he said. Kirilenko called for average prices of $1,600 for 2012, and a year-end price of $1,700 an ounce.
Russia's no help
Labor unrest is only a part of a broader suite of concerns about South Africa's mining industry. Infrastructure deficiencies, namely power outages, and aging mines that have become more expensive to operate safely also play a big part.
Russia, the world's No. 2 platinum producer, cannot step up. "The volume there is too small to offset bigger production losses in South Africa," said Commerzbank Fritsch.
Most analysts agreed that platinum markets were oversupplied earlier this year. Now the market risks a supply deficit by the end of the year if production disruptions continue.
On the consumption side, demand for diesel engines is mainly out of Europe, where the auto market is expected to be weaker or flat.
Sister metal palladium is used in catalytic converters for gasoline engines, and as such it is more exposed to the growing auto markets in Asia and South America. Palladium for December delivery (PAZ2) ended Friday up $10.30, or 1.5%, to $699.30 an ounce, with gains or more than 6% on the week.