Beware the Temptation of Platinum

February 6, 2014 | By | Reply More

Striking mine workers at South Africa’s platinum mines could tempt investors to dive into the metal, expecting prices to rise as shortages kick in.

Those looking objectively at the platinum stock situation may have second thoughts before committing themselves.

In the short term speculators and those dedicated to analysing technical analysis may make some profits but for those of us taking a long term view, this is the time for extreme caution. Beware the temptation of platinum!

South African Economy Will Be Hard Hit

In the first place the South African economy could take a hit of $35 million a day for the duration of  the strike so it is likely that the government will put pressure on the mine workers union to settle without undue delay.

Their demands are for up to a doubling of existing rates of pay which if accepted, even in part, would jeopardise the profitability of platinum miners at the present price of the metal.

Also the South African rand is in enough trouble without this situation developing into all out long term strike action.

No Short Term Platinum Shortage

Secondly it is estimated that there are sufficient stocks to meet demand for the next ten weeks. Miners strike action in the latter half of 2013 saw industry and jewelers buying in anticipation of further labor troubles so they are unlikely to face enough shortage of stock to be concerned about supplies for the next two to three months, possibly considerably longer.

Miners in No Hurry to Settle

Thirdly South Africa accounts for around 60% of total annual world production. Other sources are not expecting any backlash from their labor force regardless of the outcome of the South African strikes so their production will continue as normal.

South African mining companies are said to be holding stocks of up to six months annual production of the metal in the expectation that if the strike lasts three months or more they will eventually profit from higher prices.

Couple this with the fact that they are saving an average $9 million dollars every day the strike lasts, it becomes clear that they will be in no hurry to settle.

Will Economies Continue to Improve?

In the meantime many optimistic traders will be thinking that industrial demand for platinum will increase as worldwide economies recover from the last five years meltdown.

Of course that will be so if the worldwide outlook gets progressively better but there are now early hints that trouble may be looming. Witness the sharp downturn in emerging market stocks and currencies.

China may yet save the day but that is by no means certain. The US progressive QE taper may trigger events outside the Feds control. This is still a very uncertain world.

Most Platinum Usage Can Be Recycled

Finally it must always be remembered that platinum’s primary use is a catalyst in vehicle emission control. This simply means that it can be recovered and recycled indefinitely and so, unlike other non platinum group metals, lowering the dependency on mining as a source of supply.

Sell, Sell, Sell

Should any of our readers be bold enough to invest in platinum as a result of the labor troubles eventually causing demand to outstrip supply then we can only advise that the very moment the strikes are ended, whether in a week or six months, that will be the time to cash out. You will have to be on your toes.

For other less speculatively minded precious metal buffs, gold and silver are safer long term bets. Just beware the temptation of platinum.

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Category: Platinum Group Metals

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