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Platinum and Unions: Who Will Win?

14 Aug 2018 - Archive Platinum

Platinum, the world's third most popular precious metal behind gold and silvercontinuesto be under production pressure from labour union strikes in South Africa

 

The strikes - now lasting more than eight weeks - threaten the livelihoods of the unionlabourers and the producers doing business in South Africa

 

On Tuesday of this past week, leaders from Anglo American Platinum, Impala, and Lonmin - the three largest platinum producers in the world - announced that the strikes has cost them more than $1 billion in revenue and could result in additional long-term costs by making certain mines and shafts unviable due to the increased labour costs. 

 

The platinum union strike, led by Amcu, is one of the longest to occur in the platinumindustry. It started on January 23. 

 

At the heart of the disagreement is the demand for a basic wage of at least R12,500. This equates to an almost doubling of the basic wage currently received by platinum workers. 

 

The platinum mining companies, on the other end, argue that slightly less than half of the South African mines don't even make a profit, let alone leave room for higher wage pressures.

 

There have been offers on the table. 

 

The most recent offer of up to a 9% wage increase was rejected.  In like fashion, the companies rejected a union offer of 25% to 35% per year over a four-year period. 

 

More than 80% of the world's proven platinum reserves are located in South Africa, however the price of platinum is down about $50 per troy ounce since the start of the strike on January 23.  

 

The question now is how long the two sides can keep the shutdown going.

 

The producing companies are certainly growing tired of the deteriorating bottom line, perhaps also worried about how competitors with a more automated process might perform against their more costly labour-driven production process.  The companies are, of course, also concerned about how the strike might affect their long-term supply contracts. 

 

On the other side, labourers likely have no other option to making a living, with signs that schools and crime are also being negatively affected. 

 

With both sides in relative crisis mode, it's likely the issue will be settled relatively soon, perhaps before the end of April.  Should the strike last longer than April, platinum prices will likely appreciate quickly to account for the elimination of surplus inventory.  

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