South Africa is the home of 80% of the world’s platinum and mines roughly 70% of the platinum that we used in our day to day lives. In January of 2014, South Africa went through a 4 month long strike that may have damaged the industry in ways that have yet to surface.
During the South African strikes, the world lost roughly 1.2 million ounces of platinum which is about 1.3 billion US dollars. The shortage caused the price of platinum to move up 6% and palladium to jump by 15%. The results of the strikes were an increase in the lowest paid workers from 5,000 rand ($416) to 7,050 rand ($587) in the year 2015. Another pay raise will increase the workers to 8,000 rand ($667) by 2016. Market analyst have calculated that the price of platinum will need to increase to the $2,000 dollar range for the companies to break even. The alternative is to cut labor.
Platinum companies may be in luck. The US dollar is perceived to be strong in the early months of 2015 and with a strong dollar comes an increase in car sales. It is a well-known fact that platinum and palladium are used in the manufacturing of catalytic converters. In 2014, 71.15 million cars were sold worldwide. 2015 is projected to sell 73.87 million. China is the biggest contributor to these numbers and their rising middle class is only going to push the car sales higher. During the strikes of South Africa, the world ate through its platinum reserves in order to survive the shortage. Platinum is back up and running thanks to platinum companies folding on some issues during the strike negotiations, but the world will inevitably pay the costs of those negotiations.
The full impact of the 2014 South African strikes are hard to grasp, but platinum shortages have happened before. To see the future, it is best to look at the past. Since 2008, the US mint has only produced 1 ounce coins in mint state and proof. This is due to a shortage of supply of the metal from back in 2005. The last time platinum was this tight was the period of 2005-2007, we saw the white metal increase from $800 an ounce to $2,200. Is history repeating itself? Absolutely, the world is seeing all the same indicators. The US mint doesn’t even have platinum bullion coins on the docket for 2015 because of the sheer shortage in the market and the difficulty of getting any real supply. The media will catch wind of the rising platinum issue, but until then early investors have a chance to capture the full upside of this market.