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Johannesburg - A face-off between platinum producers and striking miners has had negligible impact on metals prices so far, but that is likely to change if the action grinds on past the end of the month and stocks are drawn down.
The strike by the Association of Mineworkers and Construction Union (Amcu) against the world's top three platinum mining companies has so far failed to ruffle traders.
Platinum prices traded at around $1 422 an ounce on Tuesday, about 2% below its levels on the eve of the industrial action.
This is partly because the mining industry is better prepared than in 2012, when it was swept by a wave of rolling and violent illegal strikes. A spokesperson for major producer Impala Platinum said last month it had enough in inventories to supply clients for six to eight weeks.
The strike began over three weeks ago when Amcu members downed tools at Anglo American Plat Ltd [JSE:AMS], IMPALA PLATINUM HOLDINGS LIMITED [JSE:IMP] and Lonmin plc [JSE:LON]. The two sides remain poles apart on the issue of wages, suggesting a prolonged stoppage.
Amcu is demanding that basic pay be more than doubled to R12 500 a month under the battle cry of a "living wage", which has been used for decades by an increasingly restive black workforce.
The typical mineworker has an average of eight dependents and often hails from a subsistence farming background far from the shafts.
This fuels their demands but also means they will find it difficult to hold out, while the companies can ride things out much longer.
"The platinum producers' balance sheets are not great but at least they have balance sheets. The Amcu guys have zero balance sheets," said Peter Major, a fund manager with Cape Town-based Cadiz.
Amcu is also known, however, for its uncompromising stance on wage talks. It emerged as the dominant union on the platinum belt in 2012 after it wrested tens of thousands of disgruntled members from the National Union of Mineworkers in a turf war in which dozens were killed.
"How long will the strike take? The struggle is the struggle at the end of the day," Mathunjwa told a Cape Town Press Club luncheon earlier this month. "We will continue."
Companies say they can ill afford big hikes as they confront rising costs and depressed prices. They have offered increases of up to 9% against an inflation rate of 5.4%.
Hunkering down
A simultaneous strike at the three companies has never happened before, and the current action has hit over 40% of global supply.
After years of stand-offs with workers over pay and faced with the more militant Amcu, mining companies are hunkering down to ride out the strike, analysts said.
"There may be a feeling that in the past decade and half, we've seen wage increase after wage increase, and I think the market is trying to tell the industry that that's not sustainable," said Michael Widmer, an analyst at Bank of America Merrill Lynch.
"The strike can go on for two months; it can go on for longer," he said. "This is less an issue of the current strike, it's more about the producers tackling the environment in which the platinum industry has been operating in the last decade and a half."
The amount of output lost from the strike is much less than it was in 2012. As of Sunday, the three platinum companies had lost about 175 000 ounces of production, based on 17.5 working days, according to the Chamber of Mines.
In 2012, Thomson Reuters GFMS estimated that the country lost about 600 000 ounces to strikes. Metals refiner Johnson Matthey has estimated the lost output that year at 750 000 ounces at least, mostly due to strikes but also to shaft closures and government-ordered safety stoppages.
The current strike would have to last another 57 more working days, or around two months, for the loss this year to reach that level.
In the meantime, producers and consumers say there is plenty of platinum around to meet demand.
"The big question over the last year or so has been, 'Where are these above-ground stocks of platinum, and who holds them?'" Macquarie analyst Matthew Turner said. "The size of those stocks is important, but it's also important who holds them."
Some of this metal is in the hands of the miners themselves, and some is held by carmakers, who along with Chinese jewellery buyers are the main end-users of platinum.
Liquidation of these supplies, held as a hedge, will have little price impact, analysts say, but once they are exhausted, a higher price may be needed to draw out further stocks of metal.
"[The futures market] shows a net long position of 350 000 ounces of platinum, and the exchange-traded funds hold more than 2 million ounces," one platinum group metals trader said. "All that metal will come back to the market - at a price."
