Why the platinum price hasn’t jumped in response to the strike
One of the curious things about the platinum strike is that the platinum price hasn't really reacted to it. The price has ticked up a little, especially in rand terms (due to the fall in the rand), but it's a matter of a few percent, nothing spectacular. This is a bit strange, given that South Africa is the world's biggest platinum producer, but as David Jollie explains in this interview, there are some good reasons for this. First, there are decent stockpiles of the metal available, and even among those affected by the strike, there are still some mines producing platinum. Second, platinum is used mostly for industrial applications, and industry is able to recycle quite a lot of the platinum it uses – platinum is used primarily as a catalyst and is not entirely consumed by the ensuing reaction. Finally, the strike hasn't yet spiked prices because investors don't seem to think the problem is intractable – as the strike wears on this may change. – FD
ALEC HOGG: I did a bit of research in the run-up to this, looking back at the 1922 strike and then there was a 1986 strike. This appears to be the longest on record. I don't know if you've done your research into it.
DAVID JOLLIE: I think it's the longest major strike on record in South Africa, but I don't think it's the longest strike because the NUM strike at northern [unclear 1:07] was actually longer than this at the end of last year/beginning of this year. Certainly, this is a long strike by any standards.
ALEC HOGG: And the implications of it continuing…we haven't seen much reaction yet to the share prices. Maybe you can enlighten us on the platinum price itself, and whether the strike has had much of an influence there. When will it start triggering investor reaction?
DAVID JOLLIE: I think it probably did that already to some extent, at the end of last year because the situation I think was clearly developing into a likely strike. Even late last year, AMCU was talking about trying to put strikes on at the same time at the major producers, etcetera. We probably saw people building up positions before the strike was announced. In Dollar terms, if we look since the strike was announced, actually platinum is lower than it was before and its underperformed gold throughout that period. We haven't seen a build-up yet of panic or worried buying from consumers that would, generally, drive prices substantially higher. If you look at palladium, I think it's a little different because we also have the Russian Crimea situation and then we have the launching of two new ETF's, as you were just talking about, so that's a little bit more interesting in the sense that there are more factors pushing the price higher. We've seen more impact I think, on palladium, than we have on platinum – in Dollar terms, at least.
GUGULETHU MFUPHI: David, it's Gugu here with Alec. I understand that the strike has impacted about 40 percent of global production. Is this a realistic number, and if so, what greater impact does this have?
DAVID JOLLIE: The percent affected depends on exactly how you've calculated it, because there's some refining still going on and some production at some of the affected companies, as well, but it's a large amount of metal. I think it's also clear that metal liquidity, until very recently, has been very good in the market. We see liquidity of sponge, by which we mean powdered metal rather than ingot form, as having worsened a little bit recently, I think, for a variety of reasons, such as less metal coming out of South Africa, less metal being sold by refiners and recyclers elsewhere because they maybe think the price is going to rise further. We therefore see a few things going on there. It's beginning to have an impact not necessarily on price, but just on people's thinking…just beginning to make them a little bit more cautious, and I think you can see that particularly amongst Asian customers. You can see that amongst customers in general: not panic and not overt concern, but beginning to be maybe a little bit more thoughtful about what the strike might mean. After eight or nine weeks of a strike, they should be thinking about 'how long can this last' and 'how is it going to end' and 'what's it going to mean for the industry after the end of the strike' as well.
ALEC HOGG: David, there was an interesting analysis done here in South Africa, about the migrant labour system and how that might have a different influence on the way the strike goes into the future. For example, if workers can go home and work there – remembering that because of migrant labour, they have two homes. They can go to their homes, survive there, and they could actually see this out. This is a message that AMCU has been giving for quite some time, but hasn't seem to have resonated yet. Is it an influence perhaps?
DAVID JOLLIE: Well, I think the labour relation situation in South Africa is quite different to most of the countries we look at and clearly, the 'two home' issue – the migrant labour issues– the migrant labour issues – are quite important. I think I have scepticism about whether this will have a major impact in the sense that South African unemployment, whether formally, semi-employment, or underemployment is a rather major issue. Whether people can just go back home and then find a financial source of support, is questionable. Certainly, what it does do is it takes away…if people go home it takes away the pressure in one location of many people who might talk about maybe trying to mend the strike, or the type of things that might lead to violence as we saw in the Marikana situation a few years ago. It will have an impact, but one has to be sceptical about how well people can support themselves away from the Rustenburg area. Even if they are at home…even if they have a house there, they still need some income. If it were easy to support themselves, one imagines that these guys would have been doing that rather than working in the mines, if it were easy to earn just as much money doing something else. I therefore think a certain amount of scepticism has to be appropriate in this case.
ALEC HOGG: They're not staying in Rustenburg. They're going home to the Eastern Cape. They're going home 1000 kilometres away to their homes where they might be able to support themselves. I'm just wondering whether this has been brought into the equation at all. Perhaps more importantly, how long must the strike continue for, before companies then start hiring different workers or new workers?
DAVID JOLLIE: As I say, the workers go home and they may or may not be able to earn enough to support themselves there. Some will and some won't, I would think. I think it's a long distance away before the mines themselves would look to hire new people. I think there's clearly a skills shortage in many areas in the mining sector anyway – more specifically, the skilled workers – and I think replacing these guys…training them up would actually be quite difficult. If you saw shaft closures/mine closures as a result of the strike, then maybe there will be a greater number of people unemployed with those skills. That might begin to change the picture a little bit. At the moment, the desire to start recruiting outside of that group is limited while the strike is a protected strike.
GUGULETHU MFUPHI: David, how is the international community reading the lack of state intervention?
DAVID JOLLIE: I think it's an interesting question in the sense that state intervention can be good or bad. I think the lack of continued discussions at the CCMA, the lack of overt state intervention – or certainly, public state intervention – is maybe a little surprising. The expectation though, is that that will increase, that we may see more pressure coming along as the strike continues, and we may see more pressure coming along as the elections approach, as well. I think that's a major issue for the ANC and other interested parties, is to try to resolve this situation peacefully, ahead of those elections, and ideally, not a just a day or two ahead, but significantly ahead. I think there's a certain amount of surprise, but actually, in many ways it probably reflects quite well on South Africa. The government is not trying to impose its view. I think the government is trying to encourage people to come to a solution, but that's quite different from saying 'we will get involved and we're all going to bash heads together'. Maybe that has to be the next step, but I don't think it has concerned people too much, at the moment – maybe it surprised a few people. I think the interesting question though, is what will come next, whether we will see the government increasingly involved, as we approach the elections.