AFKI Commodities Report: South Africa’s Platinum Strike Nears End
The 21-week strike in South Africa’s platinum mining sector could be set to end with the three affected mining companies announcing late on June 12 that they have reached an informal deal with the main mineworkers’ union.
In a combined statement, the platinum producers, Anglo American Platinum (Amplats), Impala Platinum Holdings Limited (Implats) and Lonmin, said that ‘in principle’ undertakings have been reached with the leadership of the Association of Mineworkers and Construction Union (Amcu), in respect of wages and conditions of employment.
Local media reports report Amcu has put the proposal to its members and the union has said it will respond to the mining companies on June 13. The principles underlying the proposal include an annual increase of R1,000 ($93) per month in basic pay for A- and B-band employees for two years and R950 thereafter and increases of 8 percent per year for officials, artisans and miners for two years and 7.5 percent thereafter.
Earlier this week, platinum group metals spiked higher after South Africa’s Minister for Mineral Resources, Ngoako Ramathlodi, pulled out of the mediation following wage negotiations ending in an impasse on June 9. The Inter-Governmental Technical Task Team set up by the minister on May 28 in an effort to resolve the deadlock also was dissolved.
July platinum on the Comex division of the New York Mercantile Exchange (Nymex) reached a session high of $1,485.80 an ounce on June 10, a gain of some 8 percent since the beginning of the year. By close at midweek, the July contract had eased back a tad to settle at $1,481.10.
Palladium futures, meanwhile, settled at $860.15 an ounce on June 11, less than $5 off the all-time record of $865 reached in February 2011. Spot palladium was fixed on London’s Platinum and Palladium market at $858 an ounce in June 12’s morning fix.
After news of the informal deal, U.S. platinum and palladium futures were trading sharply lower on Comex. At time of writing, July platinum had touched a session low of $1,436.70 and September palladium a low of $818.70.
The strike, which began on Jan. 23, has so far cost the three platinum producers more than R22.2 billion ($2.07 billion)in lost revenue and employees some R9.8 billion in lost earnings.
Amplats, Implats and Lonmin’s strike-hit South African mining operations account for 40 percent of world platinum supply while South Africa and Russia between them supply over 80 percent of the globe’s palladium.
The relatively subdued price reaction, particularly of platinum, until this week to the production outage was due largely to ample above-ground stocks. The three companies have not disclosed details of their current stock levels. Even when the affected mines resume production, the producers say it could take as long as eight weeks for the processing pipeline to be restocked for some metals.
Worries about Russia’s involvement in Ukraine and how the political fallout could hit Russia’s exports of palladium were a major driver of the upward spike in palladium prices since March until the recent easing of tensions.
Brent & U.S. crude soar on Iraq violence
Prices for Brent crude, the international oil benchmark, headed towards $112 a barrel and U.S. crude also soared amid the escalating violence in Iraq. Iraqi Kurdish forces on June 12 were reported to have taken full control of the northern oil city of Kirkuk while the previous day militants from the Islamic State in Iraq and Syria (ISIS) seized control of the northern Iraq cities of Tikrit and Mosul.
Analysts say there are fears in the oil market that the violence could spread to the country’s main oil producing fields in the south, disrupting supplies of oil from the country.
Brent crude for July delivery soared to a session high of $111.79 a barrel on June 12 on London’s ICE Futures Europe exchange, the highest since March 3. July Brent had closed the previous day at $109.37 a barrel.
U.S. light, sweet crude – the West Texas Intermediate (WTI) – for July delivery on Nymex touched $106.52 a barrel in morning trade after finishing at $104.40 a barrel on June 11.
Iraq produced 3.06 million barrels of oil last year, according to U.S. Energy Information Administration (EIA) data. The country has been ramping up its oil production and its oil ministry had set a target for oil production of 4.1 million barrels a day by the end of 2014.
Iraq’s oil exports averaged 2.58 million barrels in May, up slightly on April’s shipments of 2.51 million barrels a day. All exports are currently via Iraq’s Arabian Gulf facilities as the country’s northern pipeline, which runs from the Kirkuk province to the Turkish Mediterranean port of Ceyhan, has been out of action since March 2 because of attacks by militants.
Reuters quoted Iraq’s Oil Minister Abdul Kareem Luaibi on June 11 ahead of a policy meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, in an attempt to reassure the industry, as saying the country’s
Iraq’s key southern oil field export facilities are “very, very safe,” Iraqi Oil Minister Abdul Kareem Luaibi said June 11 in a Reuters report. He was quoted ahead of a policy meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria, in an attempt to reassure the industry. The bulk of Iraq’s oil production and export facilities are in the south of the country.
As expected, OPEC at its Vienna policy meeting kept the group’s 30 million barrels a day production target ceiling for the second half of 2014 unchanged.
A bigger-than-expected drop in U.S. crude stocks for last week also provided support for U.S. crude prices. The EIA on June 11 reported a 2.6-million barrel drop in U.S. commercial crude inventories to 386.9 million barrels during the week to June 6.
Gold adds gains on Iraq worries
Gold prices added gains this week amid concerns about the ramifications of the intensifying violence in Iraq. The precious metal is being supported by its appeal as “a safe-haven” investment in times of geopolitical turmoil.
Gold for August delivery on Comex settled$1,261.20 an ounce on June 11, almost $17 up on a week ago.
The precious metal had come under pressure in recent weeks amid expectations that U.S. economic recovery will continue to gather pace, leading the country’s Federal Reserve to raise interest rates sooner than earlier had been anticipated by the market. August gold on Comex dropped to an 18-week low of $1,240.20 on June 3.
Softs in mixed direction
Cocoa markets remained underpinned by expectations for a global deficit amid a strong demand outlook for the key chocolate-making ingredient. September cocoa on New York’s ICE Futures U.S. exchange added to last week’s gains to touch three-year highs with the contract settling at $3,134.50 a tonne at midweek. Cocoa on London’s NYSE Liffe exchange was also higher, finishing at £1,985 a tonne on June 12, up £24 on a week earlier.
Hefty global surpluses continue to weigh on raw sugar futures, while a spot surplus of the sweetener is adding further pressure. ICE raw sugar futures slipped below 17 cents a pound this week. The most-active raw sugar contract on ICE Futures U.S., presently July , touched a seven-week low of 16.69 cents a pound on June 12 . ICE July raw sugar – which expires on June 30 – had settled at 16.83 cents the previous day.
Continuing uncertainty over the extent of the drought-damage to arabica coffee crops in top grower Brazil provided a fillip for ICE arabica futures this week. The July contract on ICE Futures U.S. gained 3.5 percent to settle at $1.7160 a pound on June 11. A week earlier, on June 3, the arabica front-month had dipped to its lowest since late March at $1.6735 a pound. The September arabica contract finished at $1.7430 a pound at midweek.
Traders expect the volatility in arabica futures markets to continue until a clearer picture of Brazil’s 2014-2015 (April 1-March 31) crop emerges later in the harvest, which is now underway.
Robusta coffee futures for September delivery on London’s NYSE Liffe finished at $1,960 a tonne on June 12, up $46 from its settlement a week ago.
ICE July cotton futures, meanwhile, closed at 85.51 cents a pound at midweek, down 0.57 cents from their week-earlier finish.The latest U.S. Department of Agriculture’s World Agricultural Supply & Demand Estimates (Wasde), report, released June 11, was bearish in its outlook for cotton.
Projections for 2014-2015 showed higher U.S. production and ending stocks compared to last month’s forecasts, with the production forecast raised to 15 million 480-pound bales, up from 14.50 million in May. U.S. ending stocks were projected higher at 4.30 million compared with 3.9 million in May. The country is the world’s biggest producer and exporter of cotton.
The USDA’s 2014-2015 world projections include higher ending stocks and a decline in world trade compared to its May report. The government department raised its forecast of global ending stocks for 2014-2015 by 1.05 million 480-pound bales to 102.71 million. World cotton exports were projected to decline to 35.56 million, down from 36.29 million in May’s forecast, with lower imports forecast for the world’s biggest buyer, China, as well as Pakistan. Higher imports were expected for Vietnam, however. The USDA in its latest Wasde report projected China’s imports at 8 million 480-pound bales in 2014-2015, down from the 8.5 million forecast in May.
While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.