Precious Metals Weekly – Labour unrest on headlines

by: Georgette Boele

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  • Concerns about labour unrest in South Africa support platinum and palladium
  • Most of news is reflected in the prices and prices will likely top out
  • Investors increased net-long positions recently

Labour unrests in South Africa again?

The main trade union for South African platinum miners (AMCU) is seeking to double the minimum monthly wage for entry-level workers at two of the largest mining companies. It threatens with strikes at the world’s top three producers, which together produce around 70% of the global output. The three miners in a joint statement have insisted that the strikes will not benefit workers. The statement says that the platinum industry has already given pay increases substantially above inflation rate in precedent years and that the wage increases are unaffordable and unrealistic. In the meantime, the South African government has offered to mediate between both parties. Today a strike over pay by at least 70,000 workers has started.

What was the effect on platinum and palladium prices?

Since 19 December 2013, prices of platinum and palladium have started to recover. This recovery was partly driven by the move higher in gold prices and partly by the better-than-expected economic data releases. Since the start of this year, the threat of coordinated strikes at the large platinum mining companies has further supported prices. As a result, platinum prices have recovered by more than 10% and palladium prices rallied by around 7.5%.

 

What do we expect going forward?

Labour unrest in South Africa is not a new topic. It continuously hangs above the market and will likely be here to stay. Recently it may have support prices. However, labour unrest is widely anticipated and as a result the impact on prices teds to be rather modest. Platinum prices are now close to the peak set in October 2013. The question is if the sentiment is strong enough to clear this level. We believe that this is unlikely and that renewed pressure on gold prices will also drag down platinum and palladium prices.

How have investors behaved?

Speculative investors have increased their net long positions in gold, silver and platinum, but the dynamics differed. In the case of gold, investors increased their long positions and reduced short positions. In silver and platinum a larger reduction in short positions compared to long positions was the main reason behind the increase in net long positions. However, in palladium net long positions did not rise, because investors reduced their long positions. What is also interesting to notice is that investors seem to have a long “only basis” in the case of palladium. This is reflected by long positions mainly driving net positions and by short positions barely moving. Investors in precious metal ETFs have continued to reduce positions in gold and silver over recent weeks, but positions in platinum and palladium stabilized at a very high level.