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AFKI Commodities Report: Platinum Rally On South Africa Mine Violence

AFKI Commodities Report: Platinum Rally On South Africa Mine Violence

Mounting tensions in South Africa’s platinum belt and Ukraine worries are driving platinum and palladium prices higher. Crude oil also moved up on Ukraine as well as further stock drawdowns at the key Cushing hub and U.S. exports talks. Among softs, coffee continued to trend lower but cocoa edged up from last week’s three-month lows.

Platinum and palladium futures rallied strongly as violence erupted in South Africa’s platinum belt as striking mineworkers tried to prevent others returning to work, resulting in three fatalities and a number of assaults at the weekend and a further death on May 12, according to local reports.

Some mineworkers from the Association of Mineworkers and Construction Union (Amcu) started to return to work after the affected three producers made their wage offer directly to the employees, side-stepping the union.

The strike has cost Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin whose South African mines have been halted by the 16-week strike more than R18 billion ($1.75 billion) in lost revenue to date.

A war of words continues between Amcu and the three companies, with Amcu applying to the country’s Labor Court to prevent the producers communicating directly with employees.

Meanwhile, Lonmin is reported to be considering court action to halt the strike. The company in its latest production report said it had lost 2.535 million tonnes of underground production during the three months to March 31 of which it said 2.515 tonnes were lost due to industrial action.

Analysts and other market watchers believe this is the beginning of the end of the strike which began on Jan. 23. However, given the escalating tensions, platinum and palladium prices are spiking higher.

South Africa produced around 72 percent of global platinum production – some 4.12 million ounces- and about 37 percent (around 2.35 million ounces) of world palladium production last year, according to data from Johnson Matthey. But until recent days, the labor dispute had had limited impact on prices as the industry was able to build up stocks ahead of the strike.

Palladium prices also continue to be driven higher on continuing tensions over Russia’s involvement in eastern Ukraine, amid worries that trade sanctions could be imposed against Russia.

Russia is the biggest producer of palladium, accounting for 42 percent of worldwide palladium supply or 2.7 million ounces last year, including primary production and reserve sales. The country is also the second-largest producer of platinum, accounting for around 14 percent of world production in 2013.

Platinum for July delivery settled at $1,485.70 an ounce on the Comex division of the New York Mercantile Exchange (Nymex) on May 14, up $55.80 on last week’s finish of $1,429.90, and the highest close since March 8. Palladium for June delivery on Comex closed at $828.80 an ounce, its highest settlement since Aug. 1, 2011 and a $29.05 gain on last week’s close.

Gold also continued to find support from the events in Ukraine. The precious metal typically benefits at times of geopolitical uncertainty, given its safe-haven investment appeal. Gold for delivery in June on Comex broke above $1,300 an ounce on May 14 to settle at $1,305.90 an ounce, a gain of $18.30 on last week’s close.

Crude oil up on Ukraine, US exports talk

U.S. crude oil prices climbed above $102 a barrel on escalating tensions in eastern Ukraine and a further fall in crude stocks at the key Cushing, Oklahoma storage hub last week. News that the U.S. government is considering lifting its longstanding ban on crude exports amid growing domestic oil production also provided support.

The benchmark West Texas Intermediate (WTI) for June delivery on Nymex finished at $102.37 a barrel on May 14, having closed last week at $99.99.

Worries about mounting tensions in Ukraine also pushed Brent crude higher, with the July contract on the London-based ICE Futures Europe exchange settling at $109.31 a barrel at midweek, up $1.82 on where it began the week at $107.49 a barrel.

The U.S. government’s Energy Information Administration (EIA) on May 14 reported a further near 0.6 million-barrel decline in crude stockpiles at the Cushing hub, the Nymex contract’s settlement point, for the week ending May 9. But the country’s overall commercial crude inventories showed an unexpected rise of 0.9 million barrels to 398.5 million barrels. The market had been expecting a second week of decline in crude stock levels.