* Prices soar to 3-1/2 month highs after violence kills 44
* Buyers poised to act if unrest spreads further
* Demand picture weak due to European debt crisis
By Amanda Cooper and Jan Harvey
LONDON, Aug 20 Bloodshed at a major South
African mine has already sent platinum to its highest price in
3-1/2 months and signs of the turf war between unions spreading
look set to lift it further as investors refocus on supply risks
rather than feeble demand.
But any price gains are unlikely to be of much help to
beleagured platinum mining companies that are struggling to
reconcile opposing pressures to improve employment terms while
dealing with a sharp drop in demand, which forced prices below
the cost of production.
Economic weakness this year has eroded demand for platinum,
used in jewellery and autocatalysts, leaving the metal facing an
anticipated overhang of as much as 6.5 percent of total demand
this year, its biggest in 10 years. Prices since early May had
languished around levels last seen at the start of the year.
This changed after 44 people - of whom 34 were shot by
police last week - died at Lonmin's Marikana mine due to
clashes between the National Union of Mineworkers (NUM) and the
breakaway Association of Mineworkers and Construction Union
(AMCU), which now threaten to spread to other operations.
Swiss bank UBS said the situation in South Africa could take
weeks to resolve. It estimated a loss of platinum production
from the unrest of up to around 70,000 ounces, and flagged
potential for trouble to spread to bigger producers.
"This still would not clear out the 210,000 ounces expected
surplus we estimate for the year," UBS analyst Edel Tully said.
"But platinum is also pricing in the increasing likelihood
of contagion, with market focus now shifting to (the world's
biggest miner) Anglo American Platinum the only major
producer that has not yet been affected by union rivalry issues
Roughly 80 percent of the world's platinum comes from South
Africa and most supply disruptions tend to result in a knee-jerk
reaction from the markets. In 2008, fears of powercuts in the
republic sparked a price rally to record highs at $2,290.
Platinum is now trading up nearly 9 percent so far this year
at $1,514 an ounce, compared with a 3 percent rise in gold
. Prior to the Lonmin clashes, it had been below $1,400 an
ounce, close to its lowest this year.
The metal fell more than 20 percent in 2011 as the European
debt crisis strangled consumer spending and demand for motor
vehicles, in which it is used in the catalytic converters that
clean exhaust emissions.
The European car market favours diesel vehicles, which use
a higher loading of platinum than petrol engines preferred
Analysts in Europe are forecasting a surplus this year of
anywhere between 100,000 and 400,000 ounces, largely because of
flagging European car buying. Europe's automakers accounted for
more than 1 million ounces of demand last year.
The weight of surplus metal has not been lost on investors
in U.S. platinum futures, who have so far this year driven
bearish bets against their price to record highs, according to
data from the Commodity Futures Trading Commission.
The poor demand picture has offset other bad news from South
Africa this year, including a strike at Impala Platinum
and supply cuts from Aquarius Platinum this year.
"As soon as you have anything bad coming out of Europe as
regards the economic outlook, that can negate whatever South
Africa put out with regards to supply scare," Neal Meader,
research director for precious metals at GFMS, said.
"That's one reason why we've seen relative stalemate - it's
a battle between those two forces."
For now, buyers are watching for any signs the violence at
Lonmin will spread. The NUM said on Wednesday that miners at
Royal Bafokeng Platinum's Rasimone mine were blocked
from going to work by colleagues, in a further sign of labour
troubles in the sector.
And Anglo American Platinum, known as Amplats, said on
Wednesday it had received a wage increase demand from workers at
a South African mine.
Members of the AMCU union clashed with NUM members back in
February at Impala, leaving three dead and dozens injured. It
said then it already represented most of Impala's unionised
workforce, with over 15,000 at the Rustenburg facility alone,
and in June said it was recruiting at Amplats.
Impala's Rustenburg mine produces around 900,000 ounces a
year, while world number 3 producer Lonmin's Marikana accounts
for around 700,000 ounces. Amplats mines over 2 million ounces a
year in South Africa.
Rising power and labour costs and a steep decline this year
in prices had already left many South African mines struggling
to stay afloat, and a series of stoppages related to industrial
action and safety issues have cut total output this year.
"With the number of PGM (platinum group metal) mines
declaring cutbacks of some sort or another, the view is that the
market has definitely found a floor," Sharps Pixley chief
executive Ross Norman said.
"It remains to be seen whether the strikes and the violence
will spread," he said. "You've got to return to supply/demand
dynamics and at the moment, between demand and supply, it is
going to depend on which gets the bigger headlines."