By Tatyana Shumsky
Platinum prices have rallied as a mine-worker strike in South
Africa and sanctions against Russia stoke worries about supplies of
the metal.
Platinum for July delivery, the most actively traded contract
for the metal on the New York Mercantile Exchange, has gained 6.3%
this year, ending Friday's trade at $1,462.60 a troy ounce, the
highest price since March 17.
Disruptions in the two countries that together produce most of
the world's platinum could lead to additional costs for auto makers
if the metal becomes scarce. Platinum is used primarily in
catalytic converters of diesel-burning vehicles, which are common
in Europe.
Platinum mining in South Africa has ground to a halt since the
Association of Mineworkers and Construction Union went on strike on
Jan. 23 to demand higher pay. Mining companies had built up their
inventories before the strike, but those stockpiles have dwindled
as the strike stretches into its 11th week, analysts said.
"This strike has teeth in it.... Now you have to worry about
depleting inventories because the mining companies have obligations
to deliver metal to their clients," said Philip Gotthelf, president
of Equidex Inc., a Closter, N.J.-based commodities
investment-management firm.
South Africa is the source of roughly 80% of the world's
platinum. Entry-level mine workers earn about $500 a month there,
and the union wants that raised to about $1,200 a month.
Platinum producers have so far resisted the union's calls,
citing cost pressures and instead offering a 9% wage increase.
Total production losses from the strike are about 10% of
estimated world mine output this year, based on a forecast provided
by HSBC.
Adding to the supply worries are Western sanctions against
Russia in response to Moscow's pressure on Ukraine. Russia is the
second-largest platinum producer, although its output is less than
one-fifth of South Africa's.
While the sanctions haven't targeted platinum specifically, the
European Union plans to discuss new measures against Russia on
Monday.
"There's concern that [sanctions] might disrupt supply," said
Howard Wen, a precious-metals analyst with HSBC.
The continued production disruptions are likely to exacerbate
the supply shortfall in the global platinum market, said James
Steel, an analyst with HSBC, in a report. Mr. Steel expects
platinum supply to total 5.695 million ounces in 2014, well behind
expected demand of 6.364 million ounces. The resulting supply
deficit could lift platinum prices to an average of $1,595 an
ounce, Mr. Steel said.
Catherine Raw, co-manager of BlackRock Inc.'s $8 billion World
Mining Fund, said she sees investment opportunities in the
sector.
"If we continue to see a lack of production, we think we'll see
some platinum price movement," Ms. Raw said.
BlackRock is holding shares of a platinum exchange-traded fund
to take advantage of price gains rather than investing in the
stocks of individual platinum miners because their profits are
likely being dented by the strike, Ms. Raw said.
Ira Iosebashvili and Devon Maylie