This is what could drive platinum higher, very soon

July 30, 2016

By GlobalPost WriterSri Jegarajah, CNBC

Thousands of miners of South Africa’s strike-hit platinum belt gather for a rally on September 13, 2012 in Rustenurg, a day after bringing the world’s top producer of the precious metal to a standstill. Miners in South Africa may strike once again as a restructuring plan may cut as many as 14,000 jobs.
Alexander Joe

The likelihood of strikes this May and June by workers in South Africa's strategic mining sector may curb output from the world's largest supplier of platinum, presenting an upside risk for the precious metal, analysts said.

The catalyst for any upswing may come as early as this week when Anglo American Platinum (Amplats) — the world's top platinum producer and a unit of Anglo American — reveals the outcome of talks with the government and unions about restructuring plans that may involve cutting up to 14,000 jobs and mothballing two mines in South Africa.

"Whenever someone mentions restructuring to me, I get a bit nervous," Jonathan Barratt, editor and founder of commodities newsletter Barratt's Bulletin, told CNBC Asia's "Squawk Box"on Monday.

Any labor unrest may swiftly rekindle bitter memories of violent confrontations last year at the Marikana mine owned by the world's third-largest platinum producer Lonmin where 34 striking miners were shot dead by police last August in South Africa's deadliest security incident since the end of apartheid in 1994.

Any industrial action this year will coincide with wage talks across South Africa's mining sector, which start this month.

"South Africa has a history of labor issues," Barratt said. "Remember the PGM [the platinum group of metals] market is very tightly controlled so any concerns there in terms of labor issues will hit the market relatively quickly. As a result, I think you will see a bounce" in prices.

Platinum prices fell to their lowest since mid-August in mid-April to about $1,490.24 an ounce. Prices closed above $1,500 on Friday, trading at a premium to the gold price.

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'Walk Back'

The latest round of Amplats restructuring talks were extended for a month at the end of March and the final plan had been expected to be unveiled this week. "However, the parties are still in the process of concluding the details of the consultation and its outcome will be communicated during the week commencing 6 May 2013," the company said in a statement on its website on April 30.

Political risk consultancy Eurasia Group said that Amplats may "walk back" its restructuring plans following intense opposition from the ruling African National Congress and labor unions. According to unverified media reports, the company will reduce layoffs by a half to two-thirds and presumably scale back production cuts, Eurasia Group said in a report last Friday.

If true, such a scaled back plan "would represent a victory for the government, the ANC and by proxy ANC-linked National Union of Mineworkers (NUM)," said Mark Rosenberg, senior Africa analyst at the Eurasia Group.

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Nevertheless, the NUM has been "displaced" by the more militant Association of Mineworkers and Construction Union (AMCU) as the majority union at Amplats, Rosenberg said, warning the AMCU "will likely reject the Amplats plan, even if it does significantly scale-back retrenchments." That raises a "high risk" of strikes and production losses in May and June, he added.

"AMCU has enlisted the majority of platinum workers and claims 'control' over Rustenberg, the platinum-mining town near Marikana from where a big chunk of the layoffs will come," Rosenberg said. "The union will view the Amplats restructuring [however it shakes out] as a threat to its newfound power and will likely fight to maintain it."