UPDATE 3-South African strikes to spread to gold sector

Tue Jul 26, 2011 2:47pm EDT

Related Topics

* South Africa's strike season in full swing

* Gold mine workers set to strike on Thursday

* Anglo's S.Africa coal mine says output totally shut (Recasts with new material, analyst, CEO comment)

By Agnieszka Flak and Ed Stoddard

JOHANNESBURG, July 26 (Reuters) - South African gold miners are gearing to join tens of thousands of workers seeking pay rises in widening strikes, threatening to hurt output at a time when bullion is at record highs.

The gold strike on Thursday could see 100,000 workers down tools and take about 16,000 ounces a day out of global output, which could support a rally driven by European and U.S. debt jitters.

Hundreds of thousands of workers across the country have hit the streets in recent weeks, or are threatening to do so, seeking pay rises of double or triple the 5 percent inflation rate in mid-year bargaining known as "strike season" and denting investor sentiment in Africa's largest economy.

Strikes also loom in the key platinum sector in the world's biggest producer of the precious metal.

Coal miners walked off the job late on Sunday and Monday and Anglo American has halted operations at its South African coal mines which produced 58.5 million tonnes of coal in 2010. Unions said they would meet with the coal producers again for further talks Thursday.

The industrial actions have hit the wider economy with petrol workers in the third week of a strike and previous disputes in the engineering and steel sectors.

The powerful National Union of Mineworkers (NUM), with one eye on high prices, wants a 14 percent increase in wages from gold employers -- including AngloGold Ashanti , Gold Fields and Harmony , which have offered rises between 7 and 9 percent. It also wants 14 percent from the coal producers.

NUM's spokesman said on Tuesday it had given the gold mines a 48-hour strike notice and Harmony, the country's third biggest gold producer, said it had been told its workers would walk off the job at 1800 local time (1600 GMT) Thursday.

The gold miners' share prices all fell sharply in Johannesburg on Tuesday with AngloGold leading the way as it shed over three percent.

The ripple effects were seen hitting other companies.

"A lot of our chemical customers are on strike now and a lot of our factories are on strike now ... It will definitely negatively impact the second-half earnings in some way," said Graham Edwards, CEO of AECI , a South African manufacturer of chemicals and explosives.

HOLDING GOLD

Traders are monitoring South African gold supply, particularly as the spot price of the precious metal is within striking distance of record highs scaled on Monday.

Spot gold hit a record high of $1,622.49 an ounce on Monday as U.S. President Barack Obama warned that failure to reach an agreement to avert debt default could cause a deep economic crisis.

"Declining mine supply, higher production costs, and less central bank selling are almost turning gold into a bit of a supply and demand commodity, even though 95 percent of its behaviour is still currency or investor-flow related," said Robin Bhar, an analyst at Credit Agricole.

"But if you're holding gold you're not going to want to sell it against a background of strikes in South Africa, which is the fourth-biggest producer."

South Africa was once the world's largest gold producer, but in 2010 ranked behind China, Australia and the United States, Reuters' data showed.

COAL AND FUEL TALKS

Should the coal strike be prolonged, it could hit the already strained power supply along with coal exports.

Utility Eskom, which has a virtual monopoly in South Africa and has tight supplies, said the strike posed no immediate danger to its coal-fired plants as it has extra stocks.

Employers over the past two years have struck wage deals averaging about 8 percent. Many companies view above-inflation settlements as a necessary cost of doing business in South Africa. They have also slashed jobs over the period to make up for the higher personnel costs.

Unions will also hold talks with employers in the fuel sector, hoping to end a strike which is into its third week and has left hundreds of pumps dry across the country.

Economists have said wage settlements well above inflation could hurt competitiveness and the long-term outlook by driving up the labour costs.

But unions argue the official inflation rate does not reflect the full impact of rising food and fuel prices on the incomes of their rank and file.

"When you see workers strike for higher wages, it signals that they are taking strain. Consumers are taking strain because energy costs have gone up, like electricity, food prices are also up, that's where the problem lies," said Freddie Mitchell, an economist at the Efficient Group. (Additional reporting by Jan Harvey in London and David Dolan and Phumza Macanda in Johannesburg; Editing by Alison Birrane)

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