South African mine output vulnerable amid rolling blackouts

SOUTH AFRICA February 09 2015 2:41 PM

JOHANNASBURG (Scrap Register): Platinum group metals producers report improving production as they ramped up after the prolonged strike in South Africa, but Eskom warns of extremely constrained supply and load shedding is likely to persist through March.

Gold and PGM production has not been impacted yet but unplanned outages have risen. Meanwhile, the latest fundamental data suggests that physical gold demand had softened at the end of last year and remains soft in 2015, while reduced shipments from Russia imply continued tightness in palladium.

Platinum group metals producers have reported a positive close to 2014 with Anglo American Platinum’s refined platinum production up 25% q/q (down 17% y/y) at 574koz and Lonmin down 2% q/q and 29% y/y at 140koz (metal sales were up 9% y/y). Lonmin noted the maintenance work at its two furnaces created a bottleneck but repairs had been completed. However, it is worth noting that South Africa continues to suffer from rolling blackouts.

The state power utility, Eskom, usually has planned maintenance over its summer months, but over a third of Eskom’s installed capacity was offline last Wednesday. Load shedding is already implemented at stage 3 (which allows for up to 4000 MW to be offline for a rolling two hour block) and is expected to persist through to the end of March. Moneyweb Today cited Eskom saying, the system was expected to remain extremely constrained.

Although gold and PGM production has not yet been lost due to the power outages, unplanned outages are rising, supply to industrial users is constrained and the Chamber of Mines noted industrial users are normally asked to cut power usage by 10% before cutting supply to other users.

Barclays expects both platinum and palladium markets to deliver a deficit, with platinum in deficit to the tune of 522koz. But abundant inventory levels have capped platinum price gains despite prolonged strike action and the launch of the physically backed ETPs, and platinum sponge premium, although positive has eased since the start of the year.

Although weaker gold prices are likely to weigh upon the complex, as producer PGM stocks are rebuilt, power disruptions have scope to tighten the market balance in the near term and for platinum to regain its premium over gold.