No Winners In The Battle Of Platinum

Published 10 years ago

In a continent desperate for jobs, it is depressing to watch a once shining industry commit suicide. By May, it had cost the industry around $1.5 billion in production and a lot of credibility in the world market.

As I write, the platinum industry in South Africa has been on strike for nearly four months. More than 70,000 workers at Lonmin, Angloplats and Implats, which produce 40% of the world supply of platinum, are idle. The industry has all but closed for business thanks to an unsightly game of poker between the management and the Association of Mineworkers and Construction Union (Amcu). The last time South African mines were idle for this long was during the Rand Revolt of 1922 when striking white miners fought soldiers through the streets of Johannesburg over plans to replace them with cheaper, black miners.

Nearly a century later, Amcu, the union representing the great-grandchildren of those black miners, wants the minimum wage to be more than doubled to R12,500 – that is around $1,200 a month. It called the strike on January 23 and is not going to call it off until the magic number is reached. In many ways, the survival of Amcu – which is trying to eclipse the old school National Union of Mineworkers (NUM) – hinges upon securing this demand.

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The employers say no way. Wages make up more than half of platinum mining costs and the mines say they can’t afford it; they offer 9% and no more. The word in the industry is that the employers see this as a showdown and will not budge. Other employers in gold and coal look on nervously, fearing similar wage demands from their workers should the platinum employers cave in.

Amcu risks an exodus of its new found membership if it backs down.

It is a staring competition where there is only one certainty – the platinum industry will emerge much smaller and weaker. The analysts are talking about 20,000 job losses before the end of the year, even if the dispute is settled soon, with thousands more to follow. The employers will close marginal shafts and whole operations could shut up shop.

What a pity. For years, platinum has been the blue-eyed boy of the South African mining industry. It earned high prices on the world spot market. The advantage platinum enjoys over gold is that it is actually used and consumed, rather than sitting on the shelf of a bank vault. It goes into catalytic converters in cars, helps keep the air clean and is valuable in jewelry. This means it has always enjoyed better prices than gold.

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But it appears the boom times for platinum may be over. The employers have drawn a line in the sand and will try to salvage what is left of the industry when this dispute is over.

Funnily enough, the strike has not had the drastic effect on price that many feared. The spot price appears to have remained fairly stable, despite the fact that this damaging strike has taken more than a million ounces out of the market.

Some analysts even believe that this strike will help getting supply and demand back into equilibrium. Oversupply was one of the big issues last year, as the car industry slowed down, and there were stockpiles built up, hence the fairly constant price. These stockpiles are running down, as the strike wears on, and employers are already warning customers that a dearth is on the way.

Job cuts are inevitable in platinum. The industry may be able to right itself ahead of the next spike in platinum demand.

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But the damage to the image of the industry is likely to be deep and long term. Foreign investors will view the labor unrest with distaste and caution. The strike is likely to make any investor think twice before putting money into South African mining. It will also damage South Africa’s reputation as a solid supplier of platinum.

The South African government appeared ineffectual in its attempt to intervene and solve the dispute. In the run up to the elections, it appeared to have forgotten about the king sized problem of a shutdown of the platinum industry all together. Now it is re-elected for another five years, surely this is a time for action.

Related Topics: #AMCU, #Angloplats, #Idle, #Implats, #June 2014, #Lonmin, #Platinum.