The platinum price has yet to gain from industrial action at Northam Platinum’s Zondereinde mine in South Africa, UBS noted.
Platinum is up five percent at around $1,270 per ounce, after starting the year at $1,206, but most of those gains came before the start of the strike.
The broker gave three reasons for the lack of a reaction to date. First, Zondereinde accounted for just three percent of total platinum mine supply last year, according to estimates, and one percent of palladium.
“Second, while there are clearly costs incurred due to the strike, these do not have the same impact as wage inflation,” UBS’ Edel Tully said in a note on Tuesday.
“Work stoppage amid wage negotiations tends to get more reaction from the global community given that wage increases could set precedents and potentially have a wider impact on SA’s platinum industry. The risk of contagion is also higher,” she added.
Finally, investors are fatigued about platinum, particularly following the metal’s poor performance last year despite record production losses because of strikes in the country last year.
In 2014, the metal peaked at $1,520 per ounce after starting the year at $1,371 and ultimately closed at $1,206, down 12 percent.
“The threat to supply likely needs to be more substantial and urgent for the market to take notice,” Tully said.
Unionised workers downed tools at Zondereinde last week, citing issues on processes and agreements on recruitment, leave and disciplinary measures. The unprotected strike has dragged on for a week despite a court order and an ultimatum from the company urging workers to return.
Industrial action has also started at a Glencore platinum mine near Brits in South Africa following the death of a worker at the weekend.
“Platinum price indifference to South African headlines is justified right now, considering the small impact on the market’s supply and demand balance. Yet what these developments do highlight is that underlying issues in South Africa remain in place – in this case, strained labour relations and the high risk of production losses on… industry action,” Tully said.
“With last year’s estimated deficit suggesting a considerable drawdown in above-ground stocks, the reality is that this year the market is bound to be more vulnerable to production disruptions,” she added.
Platinum is regularly undersupplied, recording its third consecutive annual deficit in 2014, according to Johnson Matthey.
“The extension of last year’s underperformance is manifested in the platinum:gold ratio,” UBS said.
Despite platinum’s fundamental picture, gold has been trading at a premium of late for the first time since April 2013.
“This is indicative of investors’ wider preference for safe havens over riskier assets right now, which is also reflected in ETF flows,” Tully said.
Gold ETF holdings have risen more than 500,000 ounces so far this year, according to UBS, while platinum holdings are down 0.5 percent or 13,400 ounces and palladium is down 1.4 percent or 44.770 ounces.
Palladium has been outperforming platinum for more than two years, with the ratio trending lower over this period to hit a 12-year low of 1.45 in December.
“For now, it’s probably premature to say that this trend has reversed; more evidence is needed and a clear improvement in platinum sentiment still needs to take place. But with platinum undervalued and the long palladium trade at risk of becoming too crowded, it’s certainly worth keeping an eye on up ahead,” Tully said.
(Editing by Mark Shaw)
The post Platinum price ignoring industrial action in South Africa – UBS appeared first on The Bullion Desk.
No comments:
Post a Comment