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AFKI Commodities Report: Platinum Prices Hold Up After S. African Strike Ends

AFKI Commodities Report: Platinum Prices Hold Up After S. African Strike Ends

South Africa’s longest running strike ended this week after the main union finally reached a deal with platinum producers. The Association of Mineworkers and Construction Union (Amcu) announced the platinum mining sector strike was “officially over” on June 24 and mine workers started returning to work on the following day.

The three-year wages and conditions of service agreement that was reached ended a five-month stoppage at the platinum mine operations owned by the world’s three largest producers, Anglo American Platinum (Amplats), Impala Platinum Holdings (Impala) and Lonmin. The walkout had affected more than 70,000 mineworkers.

A full resumption of operations at the shuttered mines is expected in the coming weeks. But the three companies in a joint statement announcing the settlement warned of a ‘long road ahead to the resumption of safe and productive operations’, with the return to work now the key focus.

The strike which began on January 23 has cost the three companies R24 billion ($2.3 billion) in lost revenue and employees lost earnings of some R10.6 billion ($998 million), according to the three producers.

The wage agreement falls short of the Amcu demand to nearly triple workers’ entry-level salaries but will increase annual wages by around R1,000 ($94) a month for a three-year period.

Platinum group metals (PGMs) prices initially were pushed lower on the news of the wage settlement but remain supported by supply deficit concerns. Palladium is also finding continued support on Russian supply uncertainty amid worries of the possibility of further EU sanctions against Russia over its involvement in Ukraine.

Platinum for October delivery on the Comex division of the New York Mercantile Exchange (Nymex) settled at $1,455 an ounce on June 24, down $2.5 on the day, before advancing to close at $1,472.55 an ounce on June 26.

Comex palladium for September settled at $822 an ounce on June 24, down $0.65 on the day, but moved up to finish at $836.90 on June 26. On June 11, September palladium closed within $5 of an all-time record of $865 an ounce recorded in February 2011.

In its latest forecast for the industry published in late May, Johnson Matthey projected a 1.2 million ounce supply deficit for platinum this year, which is about 14 percent of expected gross demand and up from a 0.9 million ounce deficit last year. For palladium, the supply deficit is expected to widen to 1.6 million ounces , which is about 15 percent of expected gross demand and up from 0.4 million ounces last year.

Oil prices mixed despite Iraq crisis

Crude oil prices edged back a tad this week despite a deteriorating situation in Iraq. Analysts said with fighting still far from the country’s southern oil fields and main export infrastructure, concerns about the immediate risk to supply are easing slightly. However, oil markets remain jittery amid fears of a further escalation in sectarian violence and worries that the country is heading for a full-blown civil war.

Even if Iraq’s southern export capability were to be hit, Saudi Arabia, the world’s top oil exporter and the only country with significant spare oil producing capacity, potentially could help meet any supply shortages.

Iraq’s exports of oil in May were running at 2.67 million barrels a day, according to the Paris, France-based International Energy Agency (IEA). Saudi Arabia in May was producing 9.7 barrels a day of oil and has repeatedly said it could ramp up its production to 12.5 million barrels a day in the event of unexpected disruption to oil supplies elsewhere. On June 23, Saudi Oil Minister Ali al-Naimi was quoted by Dow Jones Newswires as telling CNN in an interview that the country could increase oil production by about 2 million barrels per day “almost immediately.” The Saudi minister was speaking a day after Iran threatened its Gulf neighbors not to compensate for any shortfall in its oil exports if sanctions hit too harshly.

However, many in the industry question whether Saudi Arabia could achieve a production level of 12.5 million barrels per day, and certainly, they say, it could not be sustained at that level.

Meanwhile, it remains unclear in whose hands is Iraq’s largest refinery at Baiji (310,000 barrels per day capacity, according to IEA data) north of Baghdad. An Iraqi military spokesperson this week reportedly denied  reports by ISIS militants that the installation now is in their control. The refinery has been shut down for some days now. While it is the biggest producer of gasoline and diesel for Iraq’s domestic markets, it plays no role in the country’s oil exports, which are largely of crude oil. Of Iraq’s other next two biggest refineries, Doura located near Baghdad has capacity of 210,000 barrels per day while the Basra refinery has 140,000 barrels per day, according to IEA data. They are reported to be still operating normally.

Brent North Sea crude, the international benchmark, for August delivery, which had topped $115 a barrel late last week, was trading in the first half of this week at around $114 on London’s ICE Futures Europe exchange . By close on June 26, Brent for August settled lower at $113.16 a barrel, down $0.84 on the previous day’s close.

Meanwhile, Nymex-U.S. crude futures briefly topped $107 a barrel on June 25 after the U.S. Department of Commerce granted two U.S. energy companies permission to export a variety of ultra-light oil if it has been minimally refined. The department classes this oil as refined petroleum product and not subject to the legislation that has prohibited the export of U.S. domestically produced crude oil since the 1970s. However, many have interpreted this latest move as the first step to relaxing the crude oil ban.

Nymex West Texas Intermediate (WTI) for August delivery touched $107.50 a barrel before coming under pressure from U.S. government weekly oil data which showed another climb in the country’s crude oil stocks. The U.S. Energy Information Administration (EIA) in its weekly oil status report said inventories of U.S. crude oil added another 1.7 million barrels to reach 388.1 million in the week ending June 20. There were also gains among some of the U.S. oil product inventories – distillate fuel stocks, for instance, were up 1.2 million barrels and motor gasoline inventories increased by 0.7 million barrels. One bright spot reported by the EIA was a further step up in crude oil input into refineries.

WTI finished at $105.72 a barrel on June 26,down $1.11 on last week’s close.