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London - Platinum's price stability in the face of the longest miners' strike in South Africa since the end of apartheid is testament to the industry's success in using stocks built up in advance to hold the market steady.
That's good news for consumers, but bad news for investors looking for a payday.
Miners in the world's biggest platinum producer have been on strike at Anglo Platinum (Amplats), Lonmin and Impala Platinum since January 23, shuttering 40% of global production.
Under normal circumstances, such an outage might have been expected to drive prices of the metal higher. However platinum, which is used chiefly in jewellery and as a catalyst in vehicle exhausts, remains stubbornly lower at $1 412 an ounce than on the first day of the strike, when it fetched $1 452/oz.
Analysts put it partly down to the availability of above-ground stocks of the metal, which Citigroup estimated at 9 million oz ahead of the strike, nearly a year's demand.
But who holds the stocks is as important as the size of them.
"There's a difference between the mining companies and car companies, whose stockpiles are precisely there to be used up at times of shortage, and investors, who have to be persuaded to part with their holdings via a higher price," Macquarie analyst Matthew Turner said.
"The fact that the price hasn't responded suggests to me that it is those mining company and car company stocks that are being used up at the moment. That's why the strike hasn't had an impact."
Investment pick-up
The last few years has seen a significant pick-up in investment demand for platinum, much of it physical.
A year ago Absa Capital listed Johannesburg's first platinum exchange-traded fund, a tradeable security backed by the physical asset that allows investors to bet on a rise in the raw material without having to hold any.
In just four months it became the largest ETF of its type in the world. Its holdings now top 1 million oz, which is more than twice the global level of investment in platinum for the whole of 2012.
The stocks backing the fund could theoretically be released back onto the market if supply tightens up, but the current price environment doesn't suggest that's imminent.
"At these levels, prices are only just where they were when the strike began, so it's hard to see why investors would choose to release that material now," Mitsubishi analyst Jonathan Butler said.
The higher prices that investors want would also be appealing to mining companies, but price volatility isn't in the interests of either producers or consumers - in platinum's case, mainly European carmakers and the Chinese jewellery industry.
Price spikes make it harder for consumers to budget and encourage substitution of cheaper metals, eroding long-term demand.
The last time platinum prices jumped dramatically, to an all-time high of $2 290/oz in March 2008, the threat to South African supply from power constraints was to blame. Miners and consumers have since taken steps to ensure that doesn't happen again.
Cushion built up
Amplats said last month that it had stockpiles of some 430 000 oz ahead of the strike, built up to cushion it from supply threats, around half of which remained on March 31, according to press reports.
If stocks run out, Amplats said, it would be prepared to buy platinum to meet its contractual obligations if necessary. However, there is no sign that this has been happening, nor that producers have been borrowing the metal as an alternative to buying.
"I would think a natural thing for a producer to do if they were getting short of metal would be not to buy it but to borrow it, either from the market or on a one-to-one basis with another producer," Credit Suisse analyst Tom Kendall said. "But I haven't seen any evidence of that yet."
"There hasn't been any of the kind of move in platinum forwards or lease rates that you would expect to see if anyone was coming in to cover a spot requirement."
Demand for the metal remains relatively soft. Offtake from the European car market, one of the biggest consumers of platinum, fell for a second year in 2013. That has kept a lid firmly on prices.
Consumers also tend to be well hedged, according to industry sources. Automakers in Japan tend to hold metal themselves, one car industry source said, while European and US manufacturers are hedged through banks and trading houses who themselves hold large stocks of metal.
"There seems to have been a pretty substantial accumulation of inventory in Asia, particularly in China, in the form of both jewellery and investment metal," Kendall said.
"We will need demand to pick up for a considerable period of time to really tighten the market."
That's good news for consumers, but bad news for investors looking for a payday.
Miners in the world's biggest platinum producer have been on strike at Anglo Platinum (Amplats), Lonmin and Impala Platinum since January 23, shuttering 40% of global production.
Under normal circumstances, such an outage might have been expected to drive prices of the metal higher. However platinum, which is used chiefly in jewellery and as a catalyst in vehicle exhausts, remains stubbornly lower at $1 412 an ounce than on the first day of the strike, when it fetched $1 452/oz.
Analysts put it partly down to the availability of above-ground stocks of the metal, which Citigroup estimated at 9 million oz ahead of the strike, nearly a year's demand.
But who holds the stocks is as important as the size of them.
"There's a difference between the mining companies and car companies, whose stockpiles are precisely there to be used up at times of shortage, and investors, who have to be persuaded to part with their holdings via a higher price," Macquarie analyst Matthew Turner said.
"The fact that the price hasn't responded suggests to me that it is those mining company and car company stocks that are being used up at the moment. That's why the strike hasn't had an impact."
Investment pick-up
The last few years has seen a significant pick-up in investment demand for platinum, much of it physical.
A year ago Absa Capital listed Johannesburg's first platinum exchange-traded fund, a tradeable security backed by the physical asset that allows investors to bet on a rise in the raw material without having to hold any.
In just four months it became the largest ETF of its type in the world. Its holdings now top 1 million oz, which is more than twice the global level of investment in platinum for the whole of 2012.
The stocks backing the fund could theoretically be released back onto the market if supply tightens up, but the current price environment doesn't suggest that's imminent.
"At these levels, prices are only just where they were when the strike began, so it's hard to see why investors would choose to release that material now," Mitsubishi analyst Jonathan Butler said.
The higher prices that investors want would also be appealing to mining companies, but price volatility isn't in the interests of either producers or consumers - in platinum's case, mainly European carmakers and the Chinese jewellery industry.
Price spikes make it harder for consumers to budget and encourage substitution of cheaper metals, eroding long-term demand.
The last time platinum prices jumped dramatically, to an all-time high of $2 290/oz in March 2008, the threat to South African supply from power constraints was to blame. Miners and consumers have since taken steps to ensure that doesn't happen again.
Cushion built up
Amplats said last month that it had stockpiles of some 430 000 oz ahead of the strike, built up to cushion it from supply threats, around half of which remained on March 31, according to press reports.
If stocks run out, Amplats said, it would be prepared to buy platinum to meet its contractual obligations if necessary. However, there is no sign that this has been happening, nor that producers have been borrowing the metal as an alternative to buying.
"I would think a natural thing for a producer to do if they were getting short of metal would be not to buy it but to borrow it, either from the market or on a one-to-one basis with another producer," Credit Suisse analyst Tom Kendall said. "But I haven't seen any evidence of that yet."
"There hasn't been any of the kind of move in platinum forwards or lease rates that you would expect to see if anyone was coming in to cover a spot requirement."
Demand for the metal remains relatively soft. Offtake from the European car market, one of the biggest consumers of platinum, fell for a second year in 2013. That has kept a lid firmly on prices.
Consumers also tend to be well hedged, according to industry sources. Automakers in Japan tend to hold metal themselves, one car industry source said, while European and US manufacturers are hedged through banks and trading houses who themselves hold large stocks of metal.
"There seems to have been a pretty substantial accumulation of inventory in Asia, particularly in China, in the form of both jewellery and investment metal," Kendall said.
"We will need demand to pick up for a considerable period of time to really tighten the market."
