A labor dispute that all but shut platinum mines in South Africa since January is extending the longest shortfall in global production since 2005, which Morgan Stanley predicts will take at least four years to fix.
For a third straight year, makers of auto parts and jewelry will use more of the metal than is mined. Credit Suisse Group AG on March 31 raised its deficit forecast for this year by 25 percent to 836,000 ounces, after concluding the strike in South Africa, the world's top producer, will prevent more than 1 million ounces from being retrieved in 2014.
Lonmin Chief Executive Officer Ben Magara said earlier this month it would buy metal on the open market "as a last resort." The company runs operations from Johannesburg. Impala, the second-biggest producer, said it is losing 2,800 ounces a day after work was halted at the Rustenburg Lease mines, which accounted for 58 percent of mined output.
"We are getting to the stage where we will not be able to meet the normal requirements of our customers," Johan Theron, a spokesman for Impala, said yesterday from Johannesburg. "We have been supplementing deliveries from the inventory, but soon that may not be possible if the strike continues.
The problem is that if the companies agree to the unions demands than the mines will not be profitable and will have to be shut. The price would rise in that situation but the companies would be hesitant to reopen the mines until a long period of high prices ensued. Long story short platinum group metals will be going higher.
Disclosure: I am long SAPLF.